28 Nov 2014
OPEC says no to target cuts – SG
FXStreet (Barcelona) - Kit Juckes, Global Head of Currency Research at Societe Generale, notes that OPEC’s decision to leave its production target unchanged created a downward pressure for crude oil prices, with the general impression being that it will fall further ahead.
Key Quotes
“OPEC decided to leave its production target unchanged at today’s meeting in Vienna, adding further downward pressure to crude oil prices. Cheaper oil has correlated with falling inflation expectations and will continue to anchor both bond yields and expectations of monetary policy tightening, but it is positive for global economic activity. CAD and NOK are the fall guys, while EUR may find some relief."
“The general view of the impact of the OPEC announcement was that oil prices fall further and stay lower for longer, but there will be a consensus that prices bounce at some point in 2015. Even so, the markets will react to cheaper oil – more so in rates where the bearish consensus in the Treasury market has been under pressure all year and another drift lower in 5y/5y inflation in both the US and Europe will probably prompt more short-covering.”
“In the FX market, the strongest correlations with oil prices are in USD/CAD, where the CAD has out-performed AUD in November and is due a tumble; EUR/NOK (where our desire to buy NOK at cheaper levels can be parked in a dusty corner for a while) and USD/MXN.”
“Less correlated but still significant is the impact of both lower US yields and cheaper oil prices on the yen, which would benefit if (and it’s a huge if) the boost to the Nikkei doesn’t trigger a blind ‘buy Nikkei, sell yen’ reaction.”
Key Quotes
“OPEC decided to leave its production target unchanged at today’s meeting in Vienna, adding further downward pressure to crude oil prices. Cheaper oil has correlated with falling inflation expectations and will continue to anchor both bond yields and expectations of monetary policy tightening, but it is positive for global economic activity. CAD and NOK are the fall guys, while EUR may find some relief."
“The general view of the impact of the OPEC announcement was that oil prices fall further and stay lower for longer, but there will be a consensus that prices bounce at some point in 2015. Even so, the markets will react to cheaper oil – more so in rates where the bearish consensus in the Treasury market has been under pressure all year and another drift lower in 5y/5y inflation in both the US and Europe will probably prompt more short-covering.”
“In the FX market, the strongest correlations with oil prices are in USD/CAD, where the CAD has out-performed AUD in November and is due a tumble; EUR/NOK (where our desire to buy NOK at cheaper levels can be parked in a dusty corner for a while) and USD/MXN.”
“Less correlated but still significant is the impact of both lower US yields and cheaper oil prices on the yen, which would benefit if (and it’s a huge if) the boost to the Nikkei doesn’t trigger a blind ‘buy Nikkei, sell yen’ reaction.”