Oil rises ahead of OPEC meeting; CAD swoons on dovish BOC

December 5, 2018

Summary:

  • Oil markets moving higher ahead of tomorrow’s OPEC meeting

  • CAD swoons on dovish BOC statement after rates unchanged

  • Where next for the US dollar?

  • Pound whipsaws as May suffers double defeat

  • Red seen in the crypto space

 

Hopes for the OPEC production cut at the meeting that will take place tomorrow push oil prices up on Wednesday. OIL.WTI and OIL (Brent) both gained by more 2% as traders expect a production cut but reports heading into the European close that it may only be 1 million barrels per day has seen price pull back a little. Both benchmarks for crude have retested weekly highs and the large gaps higher seen over the weekend remain unfilled if the market reacts negatively to the event.   

 

Despite the Bank of Canada announcing that they will leave their key interest rate unchanged there’s been a swift move in the canadian dollar following the release, with some tweaks in the statement causing a wave of selling. The overnight rate has been confirmed as remaining at 1.75% for the second consecutive month, as was widely expected by the market and forecast by all 23 economists surveyed by Bloomberg. The most dovish comments were that the economy has less momentum going into Q4 and perhaps more importantly that statement that future policy stance depends on oil, amongst other things. The USDCAD has rallied strongly since the release with the pair moving up above the early summer highs and you have to go back to June 2017 to find a higher price. Price has come within a whisker of the 1.34 handle, stopping just 2 pips shy after a rally of more than 100 pips since the statement was released.

 

The US dollar has experienced some sizable moves in both directions in recent sessions but overall the greenback has made little headway and seems to be biding its time before making the next sustained move. There’s been a little bit of softness in the USD on the day, but in the absence of any major economic releases due to the US remembering former president George H.W Bush volatility may be diminished. Societe Generale Research discusses the USD outlook and flags some tactical trades to play USD weakness in the near-term: “If we're moving to dollar softness rather than having any reason to buy the euro, we'd rather be short USD/PY, USD/NOK or USD/CAD than be long EUR/USD here," SocGen advises.

 

Sterling briefly dipped to its lowest level of the year yesterday, before finding some support and recovering as PM May suffered a double defeat in the House of Commons. MPs found the government in contempt of parliament for the first time in history after their failure to publish legal advice received by the Cabinet, before also voting down a bill which would have limited parliament’s role in deciding what happens if a deal can’t be approved before the March deadline. While the first blow for May was no doubt humiliating, the second is far more significant as it now means that MPs would have to vote in favour of a no-deal Brexit for it to occur; meaning this outcome is far less likely. The latest business surveys from the manufacturing and construction sector have provided some good news on the UK economy, but any over optimism has been firmly kept in check today with a disappointing release from the service sector. The UK service sector PMI for November slipped to 50.4 from 52.2 last month and when you consider that the median forecast was for an increase to 52.5 it’s not hard to see this is as a negative surprise.   


There’s been a fair amount of selling seen in cryptocurrencies today with BitcoinCash and EOS the worst hit and both declining by more than 10%. Bearish moods have resulted in a noticeable decrease in the crypto market cap as it’s shrunk by nearly $5 billion compared to the Tuesday’s value. The United States Department of Homeland Security (DHS) announced that it wanted to monitor transactions being conducted via cryptocurrencies operated on privacy blockchains. The document released on November 30, DHS Small Business Innovation Research (SBIR) 19.1 Pre-Solicitation, contained as much as 10 topics. One of them is named “Blockchain Applications for Homeland Security Forensic Analytics”. In the document, DHS explains that it wants to concentrate on creating blockchain forensic applications focused on privacy-oriented cryptocurrencies like Monero and Zcash. Earlier, DHS took efforts focused on Bitcoin, but now the Department also wants to get surveillance tools for privacy coins.
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