The impact of yesterday's one-time cut to the pace of ECB asset purchases appears to have completed working its way through global markets overnight. Stocks and currencies have now paused awaiting the next round of big meetings and announcements.
US index futures the FTSE and the Dax are all flat to up 0.2%. The euro continues to fall, dropping another 0.5% after an attempt to stabilize at a lower level failed amid weaker German trade and French industrial production. The ECB’s decision to reject Italian bank Monte Paschi’s request for more time to raise capital and get its affairs in order also appears to be dragging down the single currency today. GBP is rebounding moderately on stronger than expected UK trade and construction reports. Currency traders appear to be turning their focus to next week's FOMC meeting.
A December rate hike still looks like a done deal, and the big question for traders is how many increases we could see in 2017. The USD is currently pricing in four increases, though I still think two is more likely. The US dollar index has been on the rise today with EUR weakening. This has knocked gold back again, but traders should note that inflation reports from the UK and China show inflation pressures are increasing, which could attract interest to gold in the longer term.
Crude oil has resumed its uptrend following a correction with WTI up 0.9% and Brent up 0.6%. Brent is likely lagging due to its exposure to the struggling European economy and its political risk exposure. Natural gas is up 1.2% in a seasonal rally, as temperatures fall in consuming regions. CAD continues to climb today with a boost from high energy prices.
Energy traders appear to be awaiting the results of Saturday's meeting between OPEC and non-OPEC producers which is expected to nail down 0.6 mmbbls in cuts from outside OPEC including a 0.3 mmbbl cut from Russia.
The results of tomorrow's meeting may have a short-term impact on oil into early next week, but the longer term direction still depends more on the US market. US inventories continue to fall which provides support to the price at higher levels.
Fear of US shale production coming back on however, continues to cast a cloud over oil, limiting WTI rallies to the low $50s The recent OPEC rally peaked about $52. Some agencies have suggested it could take a price of up to $60 to make shale profitable enough to return so the question of where the tipping point is on the upside may be the bigger question for oil traders in the coming weeks.