Daily Alert: For Wednesday 24th February 2016

Mark Nugent 2016 H1, Daily Alert, February 2016

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Fundamentals and Sentiment – New Information (Economic Calendar)

We remain risk-on into this week.

Monday – no news.

Tuesday – German Ifo Business Climate misses target. This is seen as a leading indicator of economic health and is significant survey of 700 businesses. The output is taken seriously. UK – Inflation Report Hearing revealed nothing new.

Fundamentals and Sentiment – Market Reaction

The Vix descended below 20 on Monday and rose slightly today. Oil and commodities stay within their low level consolidation zones. Shares are up on the week across the globe; bonds prices move sideways. The JPY index shows some strength after Monday’s weakness but the commodity currencies are all up, so there is no sign of risk off.

Fundamentals and Sentiment – Financial Media

Bloomberg shows a distinct lack of “economic apocalypse” stories. CNBC leads with Saudi oil minister Naimi saying they are not out to get the US shale oil producers. What is in fact happening is a standard commodity cycle: that oil is a commodity and when the price is high, investment into new supply is made and then supply exceeds demand. The price lowers and the producers do not cut production because they do not trust each other. In time, as existing capacity is depleted, the price rises as supply meets demand and then falls below demand, prompting more exploration until supply exceeds demand again and so it goes on.

The difference this time is that the higher prices will benefit not the traditional producers but the US shale industry. This is why the venture capital industry is waiting to buy up any shale producers who go bust – they can predict the future. The Telegraph also touched on this.

The take-away is that there will not be a decision to reduce supply any time soon.

Trades
  1. EURUSD moves further into profit with a second day of selling. If you are not in a Euro short, EURAUD offers opportunities as explained on Monday morning.
  2. GBP weakness – my FTSE100 short triggers and is currently at breakeven.
  3. USDJPY drops on some risk-off sentiment during the Asian session with local stock markets going down. Monday’s weakening of the JPY may be due to BoJ intervention, say some commentators.
Tomorrow

Quiet day – US Crude Oil Inventories.

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