Stocks start the week in the red as Oil spikes on output cut talks

Summary:

• Stock indices fall; DE30 drops to monthly low. US500 hands back recent gains

• Oil spikes higher on hopes of output cut

• EURUSD falls to 16-month low

• GBP slides despite Barnier comments

• Is Bitcoin set for a big move?

There’s been some notable selling in stock markets today with the DE30 falling to its lowest level of the month and the US500 erasing all of the post Midterm gains. There’s been little by the way of economic releases of note but we have had some fundamental developments regarding trade with the WSJ reporting that the Trump administration is planning export controls on China’s intellectual property theft. Trade tensions between the world’s two largest economies have taken a back seat to US politics in the newsflow of late but now that the Midterms are behind us they could come back into focus ahead of the G20 meeting next month.

Oil has rallied more than 2% after Saudi Arabia heavily hinted at reducing their output in the not too distant future. The kingdom’s energy minister, Khalid al Falih said that market analysis amongst OPEC members showed that a 1m barrel a day output cut may be necessary from last month’s levels. It is clear that the organisation is keen to boost the price of crude after it fell into a bear market last week, with the remarks coming after comments over the weekend that the state energy giant Saudi Aramco would supply 500k less barrels a day in December due to lower demand.  

In the FX space there’s been a fairly broad move higher in the US Dollar which has seen the EURUSD fall to its lowest level since June last year and take out the prior support around the 1.13 handle. The most popular currency market has now negated a possible double bottom around 1.13 and in doing so opened up the possibility of further declines.

Our 3 markets to watch this week focus on Oil, EURUSD and DE30 and can be seen here.

The GBPUSD is also moving lower, having gapped down over the weekend as pressure mounts on UK PM May to revive her Brexit plan. Some positive remarks from the EU on Brexit have caused a move higher in the pound as the currency looks to recover from a soft start to the week. Michel Barnier, the EU’s chief negotiator has said that the main elements of an exit treaty text are ready to present to the UK cabinet on Tuesday, according to diplomats briefed on the discussions.

Cryptocurrency markets have been uncharacteristically quiet of late with volatility falling to its lowest level in over a year. On a weekly rolling basis stock indices have been experiencing greater volatility which is an extremely rare occurrence indeed. However, this isn’t the first time that volatility has diminished and previously this has preceded large moves and we could be in the midst of the calm before a storm.  Bitcoin is looking more positive after breaking above the falling trendline but bulls will want to see price get above 6800 and ideally the 200 day SMA (6989 at present) before getting too hopeful of a sustained push higher.