Sentiment turned bullish yesterday after Iraqi Oil minister stated that a production freeze is still on the table which sparked a push higher in oil prices, driving equities higher as the energy sector was quick to price in the positive comments reversing early losses in the US session. The DJIA gained 0.24%, the S&P500 gained 0.08% and the NASDAQ finished up 0.07%. In Asia-Pacific, we saw equities traded higher overnight as energy continues to drive sentiment with speculation of another meeting of oil producers in May. The Nikkei 225 gained 2% and the Shanghai composite gained 0.4% despite overheating credit concerns capping gains.
FX markets experience risk-on trading yesterday which prompted sell offs in traditional safe haven currencies such as the JPY and EUR with the EURUSD trading below 1.1300 and the USDJPY in proximity of testing 110.00. The GBP experienced some selling with gains in the GBPUSD capped at 1.4400 as yesterday’s poor Claimant Count Changes (6.7K vs -11.9K) and Average earnings Index (1.8% vs 2.1%) figures muted any bullish sentiment.
Volatility is expected in the majors today as we see several key figures and speeches being released. The UK kicks things of with the release of its Retail Sales m/m (exp. -0.1%) and Public Sector Net Borrowing (exp 5.6B) figures which will have GBP traders on the lookout for hints of the current outlook of the UK economy as they sell worse than expected numbers and buy better than expected numbers. BOE Gov Carney is also due to deliver a speech later in the day, which will experience the same scrutiny.
The EU will be the one to watch today as we see the release of the Minimum Bid Rate (exp. 0%) and ECB Press Conference due. Markets will be watching the conference, looking for clues of the current and future state of monetary policy in the single currency area. Any cuts or hints of cuts to the rates will see the EUR sold off aggressively as the EU continues its struggles to balance markets and achieve its 2% inflation mandate. On the other hand, a more hawkish tone by the ECB will have EUR bulls celebrating as thy look to drive the EUR higher and re-establish the single unite currency as a strong world player.
The cherry on top for the day is the US data which given the current battle of devaluation that the USD is facing, will have USD bulls hoping for positive data. The data due is the Philly Fed Manufacturing Index (exp 8.1) and the Unemployment claims (exp. 265K).
As is common place these days, market participants will be looking to headlines in anticipation of more back and forth from oil producers as they continue their public negotiations and swaying sentiment accordingly. Any announcements regarding a decrease in supply will see crude and sentiment alike continue to rise. While comments to the contrary will complete the current pump and dump play, seeing oil prices and sentiment plummet.