Large DOE build fails to sink Oil; S&P500 near record highs

Summary:

• Crude Oil well supported despite large inventory rise

• CAD swoons after BOC

• S&P500 remains close to all-time highs

• DE30 hits 2019 peak led by Wirecard and SAP

• GBPUSD falls to 2-month low

The Oil inventory release showed a large increase for the 3rd time in 4 weeks but despite this the market remains not far from its recent highs. The rise of 5.5M was far above the 0.9M expected and marks a big jump on the -1.4M seen last time out. However, this alone shouldn’t be too much of a negative shock for the market as last night’s API came in at +6.9M and some traders believe this represents a truer gauge of market expectations than the consensus forecast which is derived ahead of the API release.   

There’s been a sizable move in the Canadian dollar this afternoon after the Bank of Canada (BOC) rate decision, with the Loonie falling sharply as the bank abandoned its hiking bias. The overnight rate was kept on hold at 1.75% as was almost unanimously expected, but what looks like a clear dovish shift from the BOC has taken its toll on CAD.  USDCAD surged by around 70 pips in the minutes after the announcement, with the pair breaking above prior resistance around 1.3470 to trade at its highest level since the start of January but some less dovish comments in the press conference have seen something of a pullback as the move has been pared.

As the broadest gauge of large cap US stocks, the S&P500 is often seen to provide the best overall picture of the world’s largest stock market and the picture is looking pretty at the moment with the index closing in on its all-time highs. The record peak of just above 2946 was made last September and with price currently trading around 8 points below it, there wouldn’t need to be much upside for the market to head off out into uncharted territory.  Given the recent troubles it doesn’t come as too much of a surprise that Boeing have announced the firm will pause share buybacks and is withdrawing its full year guidance after the recent troubles. The problems relate to the 737 Max aircraft that’s software is suspected as being at fault in two deadly crashes. First-quarter earnings were inline with analysts forecasts at $3.16 a share while revenue showed a marginal miss in coming in at $22.92B vs $22.98B forecast. Despite this, the pre-market reaction was actually positive with shares opening higher but these gains have pared back since.

The German stock market index remains in a strong bullish mode as it is the best performing equity market in Europe on Wednesday. DE30 adds 0.7% and trades at 12350 points – the highest level since September 2018 as Wirecard (WDI.DE) gains 9.4% following the news on the major investment from Softbank. These gains come despite another warning from the German economy. The Ifo index missed forecasts and its manufacturing component slipped to the lowest point since December 2012.  

The pound on the whole is little changed on the day, but the most popular sterling cross continues to fall lower with an appreciation of the buck sending the GBP/USD rate down to its lowest level since the middle of February. The announcement of a 1922 Committee meeting later on today has further fuelled speculation that the influential group of the Conservative party are set to change their rules on the frequency of leadership challenges in a move that could spell the end of PM May’s tenure. The current rules stipulate only one challenge every 12 months, which effectively means that unless Theresa May resigns she will remain at the helm until December - and crucially past the current 31st October Brexit deadline. While rising levels of dissent against the PM from her own party has been readily apparent for months there is a sense that she has not only gone past the point of no return but that even the promise to stand down once Brexit is delivered is not enough to pacify those calling for her to resign. This could have a significant impact on the pound and with May’s replacement almost certainly to be more of a hardline Brexiteer the risks are skewed to the downside.