MORNING ROLL CALL
Oil slips back during Monday’s trading sessions as the reality dawns; USA shale extraction can now increase
Most analysts recognise the necessity for both OPEC and the non OPEC members to rigidly stick to a production cut deal, in order for the current price rise to be maintained. The fact that past agreements have been quickly breached is not necessarily an indication that this latest multi lateral agreement will be. However, certain countries may blink first.
It’s not necessarily just about maintaining the price of oil for countries such as Iran, but also the jobs and infrastructure projects which can be created through more economic activity. In a country that’s desperately playing catch up, after suffering sanctions for many years, job creation and re-investment into the nation’s overall economy, is critically important.
The bean counters and analysts were quick to “do the math” after Sunday’s agreement was reached in Vienna; the current glut of circa 300 million barrels of oil, will be halved within 6 months if current production cut targets are met. However, analysts were slightly slower on the uptake of another outlier; the Americans are back in play with shale production, once oil reaches a certain price and that price could be significantly lower than the $60 a barrel many analysts believe could be breached before the end of 2016.
In fact, at certain USA shale fields, the breakevens (in the Eagle Ford and the Permian specifically) are several dollars below the 2016 WTI average of $42.50 a barrel. In short, back in 2012, when USA shale production was arguably in its infancy, $50 oil would produce 500,000 barrels a day. Now at $50 a barrel the consensus for production capability, is well above 5 million barrels a day.
There was little in the way of progress regarding the recapitalisation of Italian banks on Monday. The possibility for a recapitalisation exists from three distinct sources. Firstly; a bail in of existing bondholders and investors; their cash on deposit and bank bonds will be exchanged for shares in the bank.
Secondly; a state rescue by the Italian government, or thirdly an ECB/Eurozone rescue. The last option still has high ranking, EU financial officials: avoiding eye contact, staring at their brogues and whistling tunes to themselves when mentioned. Monte dei Paschi (MPS) closed 3.7% higher on Monday, reaching a record 52 week high during the day. From a low of 0.16 to a high of 21.50 in 2016, it’s some recovery. Perhaps it’s a wider indication that all banks are good bets, as they’re now considered simply too big to fail?
The S&P 500 Index fell by 0.3 percent to 2,253.77, after rising by circa 3.1 percent last week. The Dow Jones Industrial Average climbed by 0.1 percent and briefly topped 19,800, while the Nasdaq 100 Index slumped by 0.6 percent. The UK FTSE 100 closed down 0.97%, Germany’s DAX closed down 0.12%, the CAC was down 0.07%. The STOXX Europe 600 Index fell 0.5 percent, following last week’s rise, the largest weekly rally witnessed in almost two years. The MSCI Emerging Market Index dropped by 0.5 percent for the second day in succession.
WTI (West Texas Intermediate) crude gained 1.8 percent to $52.40 a barrel after climbing earlier above $54 per barrel. Brent closed the day up by adding 2.1 percent to $55.47. Copper futures slumped by 1.6 percent, reversing earlier gains of circa 1.4 percent, after data showed LME inventories have risen sharply since June. Gold futures rose, after initially slumping to a ten month low. As the Fed prepares to raise rates the metal’s appeal, as a store of value and safe haven, has reduced.
Oil-exporting currencies were the main gainers versus the dollar in Monday’s trading sessions, the Canadian dollar rising sharply versus the greenback, with the Russian ruble also gaining by 2.2 percent and the Norwegian krone and Mexican peso advancing by circa 1 percent, the euro gained 0.5 percent to $1.0613, after dropping by circa 1 percent the preceding week. The euro also enjoyed gained versus the majority of its trading peers, breaching the third level of resistance versus: Swissie, Loonie and the Aussie. Cable rose to circa 1.26800 during the afternoon trading session. Brexit discussions, courtesy of the UK’s chancellor, effected sterling’s value versus many of its peers. The pound breached the third level of daily resistance versus: Loonie, Swissie, Yen and the greenback.
Economic calendar events that may effect market sentiment on Tuesday 13th December.
09:30. GBP; Consumer Price Index (YoY), 1.1% 0.9%. The expectation is that UK inflation, over the month of November, has risen from 0.9% to 1.1%. Any miss on this prediction could effect volatility in sterling’s performance versus its peers.
09:30. GBP; Core Consumer Price Index (YoY), 1.3% 1.2%. Core inflation figures for the UK will also be revealed at 9.30, The anticipation is that the UK’s core inflation figure will have risen fro, 1.2% to 1.3%.
10:00. EUR; Euro-Zone ZEW Survey (Economic Sentiment), 15.8. There is a series of ZEW sentiment surveys being released on Tuesday morning, many concerning Germany. The main focus is on the overall Eurozone data which, should confidence come in below the previous figure of 15.8, could reflect in a fall in euro value. The consensus is for a rise to 16.5. Similarly, the German ZEW sentiment index is expected to come in at 14.2, above the 13.8 previously. As Europe’s power-house economy, Germany’s performance and the overall sentiment of its citizens, is always closely monitored.
