Oil gains after inventory draw; US stocks remain bid

Summary:

• Inventory drawdown sends Oil surging higher

• Risk-on mood remains as Trump set for impeachment

• DE30 drifts lower despite strong IFO

• UK inflation data remains steady

• EURGBP tests resistance zone

There’s been a clear market reaction in the energy complex to the release of the weekly crude oil inventories with both Oil and Oil.WTI surging up to their highest levels of the day. The report came in as follows:

• Crude Oil Inventories: -1.1M vs -1.8M exp. API: +4.7M

• Gasoline: +2.5M vs +2.0M exp

• Distillates: +1.5M vs -0.4M exp

• Cushing: -0.3M vs -3.4M exp

While many of these components could be described as mixed, the drawdown in the headline is by far and away the most positive for the price of Oil. Even though the drawdown is slightly lower than the consensus forecast, it is significantly below the large build seen in last night’s APIs and this has likely caused the strong move higher in Oil.

What some had thought would be a market moving event looks set to pass with minimal reaction with Donald Trump expected to become just the 3rd US president to be impeached later on this evening. Lawmakers will debate for six hours before two votes are held - one on each article of impeachment. While this is no doubt big news and will dominate the headlines later on, it doesn’t come as a surprise and therefore is unlikely to impact the markets. Furthermore, even if Trump is impeached it looks like it would take a near miracle for him to be removed by the Senate, due in part to the Republicans having a majority in the upper house but more because it requires a supermajority of more than two-thirds.  US500 remains close to all-time highs of 3199. The region from 3184-3188 could be seen as possible support and unless this level is breached then the recent price action looks like a consolidation before another push higher.

Despite some more improving data from Germany the DE30 has drifted lower again today and continues to underperform its US peers. Release of the German Ifo indices for December provided some relief after a disappointing PMI data released earlier this week. The headline business climate index jumped from 95.1 pts to 96.3 pts (expected 95.5 pts). Current assessment and business expectations subindices increased more-than-expected with the former moving from 98 to 98.8 pts and the latter from 92.3 to 93.8 pts. This was the third consecutive month of headline Ifo index increases. Improvement in December was fuelled mostly by easing of the Sino-US trade conflict as well as by more clarity around Brexit. The DE30 has fallen down to 13220 to trade at its lowest level in a week.

The latest look at UK price pressures has shown a slightly higher than expected reading with the headline CPI Y/Y remaining at 1.5% against a consensus forecast for a print of 1.4%. After 3 consecutive lower than expected readings for this metric this represents a small upside beat and has seen a small move higher in the pound. The core reading of 1.7% was unchanged from the previous month and is close enough to the Bank of England’s 2% target to not by itself give too much food for thought amongst ratesetters ahead of tomorrow’s decision.

EURGBP rallied strongly yesterday and has this morning just about moved above the daily high seen from last Thursday - the day of the UK election. The region around 0.8520 could be seen as possible resistance and a key line in the sand here - below there this looks just like a corrective bounce in a prevailing downtrend but a clean move up through it could signal the start of a larger correction. 8 and 21 EMAs remain in a bearish trend but price has just moved above them both in recent trade.