Wednesday May 25th 2016
Even this week it is still all about Oil. This morning we saw a sharp move toward $50 a barrel for the first time in seven months, driven by expectations that shrinking supply will help erode any overhang of unwanted crude, particularly after industry data showed a sharp fall in U.S. inventories. A series of outages around the world, such as wildfires in Canada and a spate of violence in Nigeria's oil-producing region, has helped cut global oil supply by nearly 4 million barrels per day this month.
Looking at the equities side we saw a decent rebound from last week low levels with the S&P 500 bouncing back to 2084.25 and the Dow Jones moving again toward the 18,000 points mark. Europe did also enjoy a return to risk appetite with the Euro Stoxx 50 coming back well above the 3000 points and the Dax over the 10,000 points. Main drivers for both continents where Energy (oil) and Banking sector. Overall economic figures from both US/Europe were rather good and the positive Yellen’s tone about the US economy forecast made the participants forget about the stronger US dollar. Europe is enjoying a bit of stabilization after Austria and Greece issues are now resolved. In Asia the situation is rather stable with the Shanghai Comp. holding quite well the 3000 points level and the Nikkei enjoying some Yen weakens with respect to the USD.
Federal Reserve officials felt the U.S. economy could be ready for another interest rate increase in June, according to the minutes from the central bank's April policy meeting released on Wednesday. Prices for futures contracts on the Fed's benchmark overnight lending rate implied that investors saw a 34 percent chance of a rate increase next month, up from 19 percent shortly before the release of the minutes, according to CME Group.
As a consequences we saw the USD very supported across the board. EUR/USD is now trading 1.1145 coming down from 1.1616 highs of early May. Most of the participants notice that the June rate hike may be yet largely priced in and the only data that may still spur some doubts is the US non-farm payrolls due next Friday (June 3rd).
Looking at the base metals we saw a decent Copper’s bounce back today after last week lows which de-linked itself from the rest of the complex. No real fundamentals news involved but a very strong Oil market and some technical buying from oversold levels. Sentiment remain still very cautious and participants are waiting for a decent piece of news from China that could give better indications on its economic activity. Very interesting will be to see the base metal imports data for May and the China Manufacturing PMIs on May 31st.
This week, for once, the most volatile metals was Tin which finally took direction coming off sharply from the 17300$ area. At the moment is trading around 15600$ (3M) paying the fee of exports that are now showing signs of normalizing, LME stocks gradually rebuilding and spread tightness appearing to dissipate. Headline LME tin stocks currently stand at 6,980 tonnes, compared with a low of 3,655 tonnes at the end of February.
Copper after a sharp sell-off from 5090$ in April found some decent support and it is now trading around 4650$ up roughly 100$ from May lows. Worst performers, after tin, are Nickel and Lead which can’t get off their lows and continue to be penalized by traders. "Demand continues to be very good and clearly there are not enough ferro-nickel imports around but it looks like the price-makers and funds still don't want to believe it," a nickel producer said. A 270-percent jump in refined nickel and alloy imports into China in April should have been taken as a bullish signal. But the price headed lower, taking its cue from others such as copper. Zinc and Aluminium are quite stable and well supported but yet on a short-term downside path.
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