Oil trades higher following Trump’s decision

Summary:

• Oil prices soared on Monday after US President Donald Trump decided to end exemptions from sanctions for some countries purchasing Iranian crude
• US data released yesterday surprised to the downside
• Negative rates are not the biggest problem, ECB’s Coeure says

6-month high

Although Monday was a holiday in many European countries, US markets worked as usual. We were offered some macroeconomic releases from the US economy, however, before we start briefly analysing these reports let us refer to the top story of the past hours - oil. Namely, crude prices soared during the first trading day this week after US President Donald Trump communicated that the country would end exemptions from sanctions for countries still purchasing Iranian oil. Thus, waivers granted for China, India, Japan, South Korea and Turkey will expire in May, after that date these countries could face US sanctions if they continue buying oil from Iran. Let us recall that these sanctions were introduced by the White House anew last year after a 2015 nuclear agreement between Iran and six other countries had been abandoned. The prime goal of the US is to force Iran to negotiate a new deal covering not only nuclear activities but also a ballistic missile programme. Thus, if the waivers are not prolonged, then Iranian crude exports could slump putting upward pressure on the commodity price. Notice that the country’s total exports have rebounded sharply since the beginning of this year and was 1.3 mbpd in March. This amount accounted for almost 20% of Saudi Arabia’s total crude exports. Meanwhile, Saudia Arabia is reportedly willing to compensate for the lost crude from stronger Iran oil sanctions but the country will assess the impact on the market before raising its output, a Reuters report says. As Al-Falih added, over the next few weeks the Kingdom would consult closely with other countries and key oil consumers to ensure a stable and well-balanced market.

Brent oil prices surged on Monday in response to the Trump’s announcement. Note that this spike pushed crude prices to their 6-month high and no major technical obstacles are on the horizon before $75.5. Source: xStation5

Weaker US data, ECB’s comments

Monday was a holiday across European markets, hence let’s take a look at what happened in the US. We had two points of note. The first one was Chicago Fed for March coming in at -0.15 and missing the median estimate of -0.1. Nevertheless, it was a bounce from -0.29 seen in February. Apart from this reading we also got existing home sales for March which came in at 5.21 million and missed the consensus of 5.3 million. The prior value was revised subtly down to 5.48 million from 5.51 million. The reading for March could be considered as a weak one given the notable decrease in mortgage rates in recent weeks (the 30-year average mortgage rate slid to 4.4% from 5.1%). Despite these misses the US dollar slid only marginally while US stock market’s performance was mixed - SP500 and NASDAQ were up, Dow Jones down. In turn, this morning is beginning with a bunch of remarks from ECB’s Coeure. He said that negative rates were not the biggest problem and banks should rather focus on costs instead. He is convinced that economic growth should return in the second half of 2019 if a trade conflict is resolved. The EURUSD is trading subtly lower this morning.

The EURUSD is trading within its bearish channel in early European trading hours. Source: xStation5

In the other news:

• Japan’s economy minister Motegi said that trade talks with Lightizer would start from April 25

• New Zealand’s credit card spending was up 5.1% YoY in March