Monday 23 April 2018

Daily Market Update: No deal in Doha sends markets lower

The oil price has tumbled the most in two months after talks in Doha ended without any agreement on limiting crude oil supply
The oil price has tumbled the most in two months after talks in Doha ended without any agreement on limiting crude oil supply

The oil price has tumbled the most in two months after talks in Doha ended without any agreement on limiting crude oil supply.

It had been hoped that there would be a freeze in oil production at January’s level. However, Saudi Arabia’s insistence that Iran, which refused to curb its production, should be part of any agreement led to no deal being clinched. Part of the oil price recovery in recent weeks was founded on the expectation that a production freeze deal would be forthcoming. On Friday morning Brent crude oil opened at $44pb. This morning it is 7% lower at $41pb. Equity market performance has been strongly correlated with the oil price. Following a sell-off in Asian equity markets overnight, the Euro Stoxx index is 0.8% lower in early trading. On the currency markets, the single currency lost ground against both sterling and the dollar last week. Last Monday EUR/USD opened at $1.142 and this morning is at $1.129. The latter is up slightly from Friday’s open of $1.127. EUR/GBP opens this morning at 79.7p which compares to around 80.8p this time last week.

Last week we had weaker than expected US retail sales figures which raised the prospect of a weak Q1 GDP outturn. This trend continued on Friday with industrial and manufacturing output disappointing market expectations. Manufacturing output fell in March by the most in a year. Consumer confidence is also on the wane with the University of Michigan survey falling to a 7-month low in April. It is a reasonably quiet week for US economic data releases this week. There are a number of housing market releases due throughout the week with the Philly Fed survey on Thursday. The Brexit debate ramps up a gear today with the UK’s HM Treasury releasing its long-term assessment of the economic costs of such an outcome. The headlines from the report are being trailed in the media this morning. Leaving the EU would cost households £4,300 a year making them “permanently poorer” the Chancellor is expected to say later today, according to the FT. The assessment looks at a number of scenarios which include alternative sets of trade barriers and tariffs. Today’s report comes just days ahead of Obama’s visit to the UK where the US president is expected to say that the UK is better off in the EU. Meanwhile SNP leader Nicola Sturgeon has said that Scotland should have the right to hold a new referendum on independence if the country is taken out of the European Union “against our will”.

Financial markets will remain focused on the ramping up of the Brexit rhetoric this week. The BoE governor, Mark Carney is addressing the Lords Economic Affairs Committee tomorrow afternoon. Meanwhile the UK Chancellor will appear before the Treasury Select Committee to discuss the benefits and risks of continued British membership in the EU. Outside of this, there are a number of key UK releases due. The latest round of labour market data is due on Wednesday followed by retail sales for March on Thursday. The ECB is the only major central bank meeting this week. No change is expected this Thursday after the ECB embarked upon additional stimulus measures at its last meeting. As always, however, Mario Draghi’s press conference and opening statement will be closely watched. On the data release front the German ZEW (Tues) and the flash PMIs (Fri) are the key releases of the week.

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