9 Dec 2014
The Oil price rout continues – SG
FXStreet (Barcelona) - Kit Juckes, Global Head of Currency Research at Societe Generale, notes that with an empty economic data calendar, markets have been reacting strongly to the fluctuation in oil prices, with the 10-year yields dragged back to pre-NFP rates.
Key Quotes
“This morning's foolishness (apart from staring at a truly wonderful sunrise over London) was to draw trendlines over this year's moves in US 2 and 10-year Treasury yields and extend them until they meet - at 1% in 2016. OK, that's just line-drawing but as shorter-dated rates edge higher (Hilsenrath is talking up the possibilty that 'considerable time' is expunged from the FOMC Statement next week), and oil prices drag 10-year yields back to where they were when the NFP data came out on Friday, the flattening trend remains really strong. 1% may be too low for 2s and 10s to cross, but the notion of 2s hitting 3% before 10s do is looking less fanciful every day.”
“Meanwhile, the oil price rout continues. With a pretty empty economic data calendar, markets are reacting more to oil, too. Energy stocks are weaker, and so are energy and resource-sensitive currencies.”
“Since oil prices started to fall in June, they've come down by over 40%. USD/CAD has risen by or 5% over that period and US/NOK has risen by nearly 20%. USD/MXN has risen by 11%.”
“The oil price rout has three drivers - increased supply, weaker demand and the loss of power by OPEC. None looks temporary. Our oil analysts expect prices to stay depressed for a long time, but how deep the spike lower can be is anybody's guess.”
“In terms of impact on the economy and on the corporate sector, I worry that Canada is more vulnerable than, say, Norway since there has been so much debt-financed investment in boosting capacity. USD/CAD can spike further. By contrast, while there is absolutely no point in fighting the uptrend in USD/NOK and EUR/NOK, buying NOK/SEK and selling EUR/NOK as soon as oil prices stabilise appeals.”
Key Quotes
“This morning's foolishness (apart from staring at a truly wonderful sunrise over London) was to draw trendlines over this year's moves in US 2 and 10-year Treasury yields and extend them until they meet - at 1% in 2016. OK, that's just line-drawing but as shorter-dated rates edge higher (Hilsenrath is talking up the possibilty that 'considerable time' is expunged from the FOMC Statement next week), and oil prices drag 10-year yields back to where they were when the NFP data came out on Friday, the flattening trend remains really strong. 1% may be too low for 2s and 10s to cross, but the notion of 2s hitting 3% before 10s do is looking less fanciful every day.”
“Meanwhile, the oil price rout continues. With a pretty empty economic data calendar, markets are reacting more to oil, too. Energy stocks are weaker, and so are energy and resource-sensitive currencies.”
“Since oil prices started to fall in June, they've come down by over 40%. USD/CAD has risen by or 5% over that period and US/NOK has risen by nearly 20%. USD/MXN has risen by 11%.”
“The oil price rout has three drivers - increased supply, weaker demand and the loss of power by OPEC. None looks temporary. Our oil analysts expect prices to stay depressed for a long time, but how deep the spike lower can be is anybody's guess.”
“In terms of impact on the economy and on the corporate sector, I worry that Canada is more vulnerable than, say, Norway since there has been so much debt-financed investment in boosting capacity. USD/CAD can spike further. By contrast, while there is absolutely no point in fighting the uptrend in USD/NOK and EUR/NOK, buying NOK/SEK and selling EUR/NOK as soon as oil prices stabilise appeals.”