Oil remains under pressure; Pound still near 2-year lows

Summary:

• Oil drops despite inventory draw

• Equities pullback

• DE30: carmakers drop after fall in sales

• UK inflation data inline; GBPUSD remains near 2-year low

• CAD CPI meets forecasts 

The weekly crude oil inventory release from the EIA has shown a slightly larger than expected drawdown, although the report overall is pretty mixed. There was a lot of noise in the immediate aftermath, but in general it appears that the news has not provided a bullish enough catalyst to see more of yesterday’s declines recoup and price is drifting towards the recent low of 63.80. At the time of writing Oil is testing some potentially key longer term support and a possible bear flag can be seen on D1.

It’s been a bit of a soft week so far for global stock markets with equities pulling back after the strong recent run of late. The S&P500 has fallen to its lowest level of the week this afternoon after breaking below the Ichimoku cloud on H1. The prevailing long term trend remains higher, but in the near term it appears that bears are having some joy after a tough couple of months. 

Shareholders of Daimler (DAI.DE) are said to be opposing planned move of former-CEO Dieter Zetsche to company’s supervisory board. Zetsche stepped down as CEO in May 2019 and was about to take a 2-year long hiatus before becoming company’s Chairman in 2021 (German regulator requires such hiatus). However, his return to the supervisory board has been put under question along with the emergence of Handelsblatt report. The newspaper reported that some of the Daimler’s “large” shareholders do not see return of Zetsche as an option. Car makers as a group trade lower today due to disappointing European car sales data. According to the data published by the European Automobile Manufacturers’ Association, sales dropped 7.9% YoY to 1.49 million cars in June, marking the biggest monthly drop since December 2018. The biggest declines were seen in Spain and France while Germany and UK fared slightly better. 

The latest UK inflation figures have matched expectations with both the headline and core CPI readings in year-on-year terms coming in inline with consensus forecasts. The headline Y/Y rose at 2.0% with the core reading at 1.8%. This means the headline inflation metric remains at the Bank of England’s threshold of 2.0%, but Governor Carney and his fellow rate-setters are unlikely to place too great a weight on this with economic data still very much of secondary importance given that Brexit uncertainty continues to loom large. 

The pound earlier dropped to its lowest level since March 2017 as it dipped below the $1.24 handle against the US dollar and the currency continues to be pressured by Brexit-related concerns. Remarks that Boris Johnson, the clear favourite to be announced as the next PM within a week, is willing to use unorthodox strategies in an attempt to bypass parliament and force through a no-deal by October 31st have done little to help the pound’s plight and while this scenario remains unlikely, its represents a significant tail-risk for sterling. 

With so much pessimism around at present there is a feeling that we may be getting a little  extreme on the negative side and it would not be at all surprising if there’s a bounce in the not too distant future. A kind of sell-the-rumour-buy-the-fact move may well play out, possibly coinciding with the new PM moving into number 10 and creating a Boris-bottom for the pound!  

The Canadian CPI year-on-year rose by 2.0% in June, as was predicted by the consensus forecast after the prior showed a 7-month high of +2.4%. The mean average of the 3 “core” measures is just above 2.0% and remains close to the middle of the 1-3% threshold that is the BOC’s inflation target. The market reaction to the data wasn’t huge, but there was a notable drop seen in the Canadian dollar right after the release. This weakness has proved fairly temporary however, and USDCAD is back near recent lows just above the 1.30 handle at the time of writing.