Wednesday 20 June 2018

Daily Market Update: Oil price rebounds

Oil Production
Oil Production

Following a negative start yesterday morning, risk appetite returned to financial markets as the session progressed.

The absence of an oil production output freeze initially sparked a sell-off in early trading yesterday. Brent crude had initially fallen over 7%.  However, most of those losses have been recouped with the oil price up from $41pb yesterday morning to around $43.8pb as I write.  This is a gain of almost 6% and compares with an oil price of $44pb back at Friday’s open. On the currency markets the dollar has been on the back foot over the last 24 hours. EUR/USD is back above $1.13 this morning and sterling has moved from $1.416 to $1.431 over the last 24 hours. Meanwhile EUR/GBP has moved from 79.8p to 79.1p over the same time period.

Last night the Federal Reserve Bank President of Boston, Eric Rosengren (voter), said that while a gradual pace of increases in the fed funds rate is appropriate, the financial markets are too pessimistic in their view of rate increases over the next few years. Meanwhile New York Fed president William Dudley was addressing a conference yesterday. Dudley described US economic conditions as “mostly favourable” despite the Fed’s reticence to raise rates. “Policy adjustments are likely to be gradual and cautious, as we continue to face significant uncertainties and the headwinds to growth from the financial crisis have not fully abated.” Dudley repeated that he was confident that too-low inflation would rise to a 2 percent goal over the next few years, and that "economic conditions have finally warranted the start of US monetary policy normalisation." This afternoon we get more housing data in the shape of housing starts and building permits for March.

The key release today is the German ZEW due at 10.00hrs.  Last month the influential survey of financial analysts fell to a 13-month low of 50.7. The consensus opinion in the latest Bloomberg poll of analysts is that the ZEW will stabilise in April (50.8). Meanwhile the forward looking expectations component (for future economic growth) is expected to show a modest improvement in April, following a similar gain in February.

There have been no (regular) economic data releases in the UK over the last 24 hours. Yesterday’s Treasury publication of its analysis of the economic impact of EU membership has caught all the media headlines. Not surprisingly it came down firmly in favour of the UK remaining within the EU. However, it has turned up the heat on the political debate particularly within the Conservative party. Later this afternoon BoE Governor Mark Carney will address the House of Lords Economic Affairs Committee.  No doubt the ongoing Brexit debate will feature prominently.

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