Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Oil Bounce Clears Palate Of Risk Appetite

Published 01/25/2016, 03:53 AM
Updated 05/19/2020, 04:45 AM

Markets look set for a solid day in Asia after the ECB-fuelled two-day rally last week. Speculation around further easing by the Bank of Japan at their meeting this week is likely to see further gains in the Nikkei. But the rebound in global commodity prices looks set to help the Aussie market today. Good performances by N:BHP and AX:CBA’s ADRs on Friday is pointing to a decent open on the ASX, with the market set to open up more than 1%. If strong gains around the region are not destabilised by the Chinese cash market open, perhaps 5000 could be in play for the ASX today.

  • Draghi’s announcement last week that the ECB may look into further easing measures at their meeting in March provided the fillip for the major two-day rally in oil. One should bear in mind that the market was so heavily short that even if only a small percentage of those contracts were covered it would have led to a minor rally. Draghi provided the proximate cause for the short-covering rally.
  • But the two major unknowns in the oil market have not yet reached their denouement: the rate of new Iranian output and China’s slowdown concerns. The market will be watching very carefully to see how quickly Iran can rebuild output capacity and probably will need a couple of months to fully price this in. China may be less of a concern for markets over the coming weeks as they go offline for Chinese New Year. But as Q1 activity data starts being released in March and April, markets could be in for a nasty shock as the seasonally weak Q1 has all the indications of being particularly bad this year.
  • The Fed and Bank of Japan will be keenly in focus this week. Markets will be watching the Fed statement to start pricing in the most likely date for the next rate hike. The Fed will no doubt try to keep March and April nominally in play, but at the current juncture no one expects more than one rate rise this year, and not until 2H.
  • Speculation about a possible further easing move by the Bank of Japan provided a huge 5.9% bounce to the Nikkei on Friday. Trade in the yen has been somewhat more circumspect, but it still gained 1.5% on Friday. Speculation clearly reached fever pitch on Friday when BOJ governor Haruhiko Kuroda was interviewed on Bloomberg TV and the yen traded wildly back and forth on every statement he made. It should be noted that the BOJ has consistently disappointed market expectations for further easing over the past couple of months and they are more likely than not to leave their policies unchanged. However, given the current climate, the Japanese trade data out today has the potential to be far more market moving than usual. A big drop off in exports will likely be attributed to strength in the yen, possibly fueling further speculation in the markets the BOJ may be forced to move this week.

IG Morning Prices

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.