A Kiwi, A Krone, And An Oil Rout

It was relatively quiet overnight session which saw market participants continuing to focus squarely on crude, after WTI hit a 10-month low on Wednesday and Brent sunk below $45 for the first time since November.

Oil

“There is just too much oil in the market,” Fereidun Fesharaki, founder and chairman of energy industry consultant FGE, told Bloomberg TV in an interview, adding that a further 700k b/d needs to be trimmed from the market to boost prices. “OPEC cannot wait. They have to cut the production to lift the prices to $50. If they don’t do it, the bear market will push the prices even below $40/bbl.”

Speaking of the cartel, the OPEC, non-OPEC Joint Technical Committee met on Thursday. Discussions centered around dealing with increased output from Libya (which, you’re reminded, is producing the most oil in four years). Unidentified delegates said no one had any serious discussions about deepening the cuts although, apparently, the subject did come up.

There were a couple of notables from central banks. The RBNZ kept rates unchanged and suggested it wasn’t overly concerned about kiwi strength. “It appears that the bank isn’t too perturbed by the rally in the currency given that export prices have also risen,” Kiwibank’s Zoe Wallis said, adding that “the market was expecting stronger language on the exchange rate and failure to deliver that has sent the New Zealand dollar higher.” Here’s the kiwi:

Kiwi

“The RBNZ stating that a lower New Zealand dollar would help re-balance the growth outlook towards the tradables sector [is a] slight shift from the previous meeting, but not back to saying a lower NZD ‘is needed’,” Nomuras Peter Dragicevich said, summing things up.

We also got the Norges Bank which, as expected, kept rates on hold. The messaging was hawkish with the bank projecting the rate path bottoming at 0.5% compared to 0.4% earlier which eliminates the probability of a future cut. The first increase is expected at the beginning of 2019.

“The Executive Board’s current assessment of the outlook and the balance of risks suggests that the key policy rate will remain at today’s level in the period ahead,” Norges Bank Governor Oeystein Olsen said in website statement.

“Norges Bank’s cautiously hawkish message should mean an initial 4-8 figure downside move in EUR/NOK,” Danske Bank analyst Kristoffer Kjaer Lomholt wrote in comments e-mailed to Bloomberg.

EURNOK

Other than that, it was quiet in FX. “The dollar was mixed versus its Group-of-10 peers, staying within very tight ranges against most, as a recycling of the market’s latest themes dominated price action amid lack of fresh impetus,” Bloomberg wrote this morning. “The slump in oil prices is damping the inflation outlook for major central banks, strengthening the case for them to stay on hold for longer, while Brexit uncertainty is outweighing Bank of England concerns for now.”

Ultimately, no one wants to get too aggressive as there’s “subdued investor interest for large fresh positions in the major currencies [while] fast money names are opting for 30-pip trading strategies,” Europe-based traders said.

Here’s a snapshot of global equities, which are struggling to find a reason to move higher amid the crude rout:

  • Nikkei down 0.1% to 20,110.51
  • Topix down 0.07% to 1,610.38
  • Hang Seng Index down 0.08% to 25,674.53
  • Shanghai Composite down 0.3% to 3,147.45
  • Sensex up 0.5% to 31,449.47
  • Australia S&P/ASX 200 up 0.7% to 5,705.95
  • Kospi up 0.5% to 2,370.37
  • FTSE 7416.95 -30.84 -0.41%
  • DAX 12770.06 -4.20 -0.03%
  • CAC 5257.75 -16.51 -0.31%
  • IBEX 35 10683.60 -57.10 -0.53%
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