Oil pulls back after inventory build; Stocks searching for direction

Summary:

• Oil pulls back from daily highs after inventory rise

• US stocks searching for direction’ trade deficit improves

• Law firm report boosts Wirecard

• Wild moves on the Turksih Lira

• UK MPs to hold indicative votes this evening

The weekly oil inventory data from the US has shown an unexpected build after two consecutive drawdowns, causing the crude markets to pull back from their highest levels of the day. The print of +2.8M is comfortably above the -1.2M expected, and also last night’s API reading of +1.9M. The rise comes after last week saw a massive drawdown of 9.6M. Oil has been trading in a 450 tick range for the past 6 weeks, pulling back a little after the latest inventory build.

Tuesday’s US session saw solid gains for the stock markets, but they did pull back from their highs into the cash close in a further sign that they are still searching for a clear direction. Following Friday’s swoon, the S&P500 appears to have regained some of its poise but it still remains susceptible to another flush lower. The recent lows of 2790 are an obvious place to keep an eye on should price push lower once more whereas a move above 2865 would open up the possibility of a retest of the record peak at 2947. The main economic release of the afternoon will be warmly welcomed by President Trump, with the latest figures showing the US trade deficit dropping sharply to $51.2B. This represents a decline of almost 15% from the prior $57B and is the sharpest drop since March 2018

It’s a similar story in Europe with the German Dax trading back little changed after early attempts to break both higher and lower failed. Wirecard (WDI.DE) shares experienced an abnormal surge in the afternoon yesterday. The company announced that independent law firm that was investigating alleged illegal actions of the German fintech, found nothing to be concerned about. Indeed, some employees at Wirecard’s Singapore unit may face criminal liability but no fault on behalf of the whole company was evidenced. Following the announcement Wirecard shares traded even over 30% higher.

Turkish lira is losing ground again on Wednesday after gaining around 8% on Monday and Tuesday after the central bank limited liquidity in an attempt to prevent currency sell-off. As a result overnight rates soared above 1000% at one point today. However, investors fear that increased hostility towards foreign institutions ahead of local elections this Sunday could eventually cause adverse consequences. Other emerging markets are affected as well with USDZAR rising 1.6%, USDBRL 1.4% and USDMXN 0.9%.

Speaker of the House, John Bercow has announced that there will be 8 options for the indicative votes this evening as Parliament seeks to take control of the Brexit process. It remains unclear how we proceed after tonight’s votes, with some seeing 317 as a key number to watch - that is the amount of votes needed to ultimately pass through parliament - while others believe 242 - the number of votes that backed May’s deal at the last try - is really the threshold to keep in mind. It’s worth pointing out that the votes on these are not legally binding, but it is probable that any option which gets more than 242 will be given the chance to proceed to a final vote expected for the start of next week. The lack of clarity on what this ultimately means has left the pound ranging around the $1.32 mark, but there’s the feeling that the subdued trade could be the calm before the storm.