| Good morning,
Oil lower on Saudi/Iran intransigence
An OPEC meeting in Doha ended last night with no agreement on a potential freeze of output, sending oil prices lower, strengthening the USD and sending commodity currencies sharply downwards.
The battle lines between Iran and Saudi Arabia were what split the meeting yesterday with Saudi Arabia seemingly pulling back from the table in a bid to not allow any Iranian acquiescence. Going into the meeting we thought it was unlikely that Iran, finally allowed to sell oil internationally thanks to the end of US/EU sanctions, would be open to choking off supply.
As it stands at the minute oil prices are around 5% lower on the session. It is back to the drawing board it seems for those looking for a pick-up in oil prices and policymakers hoping that inflationary pressures are going to rebuild in the near term, allowing them to bring in a normalisation of monetary policy.
In the short term, the fallout from the decision in Doha will be felt in the USD, which we expect to remain on the front foot although within current trends, and commodity currencies that will likely sell off the gains that they have made in the past few weeks. Equities should dip in the short term although we doubt that they crumble on this news; these are lower oil prices as a result of oversupply and not as a result of under demand.
Treasury releases damaging report on Brexit
The Remain camp has come out swinging this morning with a report from the Treasury that leaving the EU would cost households as much as £4300 a year. The figure relies on increased costs of imports and falling trade revenue. Last week one opinion poll suggested that some voters who were leaning towards a vote to Leave the EU would change their vote to Remain should a Brexit cost their household £100 a year; I don’t care who you are £4300 is going to leave a dent.
Leave campaigners have pointed to the fact that the Treasury is by no means independent in these matters and therefore the numbers cannot be trusted. Sterling is lower this morning however against both the euro and the dollar, something that is a likely hangover from the oil news. Fears that Wednesday’s unemployment report will show that the UK economy is losing its job creation momentum are also weighing the pound down.
Kiwi lower on inflation
One commodity currency bucking the negativity is the New Zealand dollar despite a poor inflation reading. CPI came in at 0.2% on the quarter and 0.4% on the year, way below the RBNZ target and it makes a lot of sense to us that the authorities will likely use this alongside similar fears in trade sensitive nations like Singapore to maintain a negative bias on the NZ dollar.
Earthquake sends JPY higher
The yen has strengthened over the weekend on risk grounds as the country deals with 2 earthquakes within 48hrs of each other. Alongside the loss of life the damage to factories and infrastructure will limit industrial and manufacturing output and may offer the authorities a bit of political cover should they wish to add stimulative policy into the mix.
The data calendar is quiet today.
Have a great day.
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