US futures are trading higher as traders are taking their cue from European markets. It has been a stout weak for the equity markets and most of the gains were made on the back of the oil rebound, as OPEC members finally quench market’s thrust of over supply. Both crude and Brent are trading firmly higher, and the bottom, which we called a few weeks ago, is becoming more stronger. It appears that OPEC members are somewhat pleased with the outcome of this oil rout and envisage that non OPEC production will diminish and they will be the only ones holding the strongest hand.
A rebound in the oil price has provided much abutment for the equity market and for central banks. Fall in oil price has always been a temporary affair and how long does it take for the supply glut to evaporate, is a question which many will answer by their own twist, but the final agreement will be that it will depend on the Fed interest rate policy, which is driving the demand equation and has elevated the volatility in the market.
Despite, the fact that many members have nodded to keep their production at January level or in other words at their record level, the supply and demand equation will take some time to balance. The Brent price has failed to break above its recent high of $36 despite the recent OPEC meeting. It appears that the price requires an astounding catalyst to break above this level and the upcoming crude inventory data due today could provide this.
Asia also closed higher on the back of more stimulus hopes and this itself has aloof some volatility from the markets, as traders do not feel too much angst about holding riskier assets – at least for now!
The FOMC minutes released yesterday has also eased off some anxiety, which traders had about the stock market. Unquestionably, the recent rout in the equity market is a clear aftermath of the Fed increasing the rates. If you cogitate that the equity market was going to have smooth sailing despite the fact the Fed said they going to increase the interest rate, then abrupt wake up call must be the final outcome. Battle ground was shifting for investor and the direct result is what we have cited.
The Fed officials have said that further rate hikes are data dependent and a similar message was reverberated yesterday in the FOMC minutes.
In terms of economic data, we have the US Philly fed manufacturing index data at 13:30 GMT and the forecast is for a slight better number of -2.9 while the previous reading was at -3.5. The unemployment data is also due at the same time and the forecast is for 275K. However, the number which is going to make the most noise is the crude oil inventory and the forecast is for 3.2M.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam