World Stocks Drop But Europe Shrugs off Oil Slide, China Money Market Surge

World Stocks Dropped – Fall in Oil Prices/Rush in Chinese Yuan Deposit Rate

World stocks, on Tuesday fell for the fifth straight day anchoring near its lowest level in over two years making investors upset due to the fall in oil prices as well as a rush in offshore Chinese Yuan deposit rates. However, the European stocks recovered from initial weakness due to a rally in the retail segment. Strong seasonal updates had been posted by British companies in particular, lifting the FTSEuroFirst 300 up from three month low.

According to analyst, the People’s Bank of China had earlier compelled overnight, deposit rates in Hong Kong to 66.8% in order to overcome the heavy downward pressure on the Yuan, which was a severe measure essential in cooling the Chinese market volatility Deflation cautious investors in Asia avoided equities and pushed the value of the safe-haven Japanese yen, as oil slipped closer to dropping below $30 a barrel for the first time in 12 years.

Chief market analyst at Avatrade in London, Naeem Aslam informed that `investors in Europe are shrugging off some of the anguish around the Chinese market sell-off and showing some resilience today despite the up and down swings in Asia.

Slowdown in Global Economy/Volatile Chinese Markets

The FTSEuroFirst 300 was up 0.6% at 1,342 points, at 0900 GMT, only its second rise this year while Britain’s FTSE 100 was up 0.5%, Germany’s DAX was up 1.1% and France’s CAC 40 rose by 0.8%. The shares in Morrison’s rushed 12%, while Debenhams climbed 15% and Tesco rose 5%. The broadest gauge of world stocks of MSCI was however down 0.2% and had not risen since Dec 29. MCSI’s broadest index of the shares of Asia-Pacific outside Japan was 0.4% lesser just cautious of its lowest level in 4 years.

 Since the beginning of 2016, it is down more than 9%. Japan’s Nikkei had closed at 2.7 lower at its lowest level in about a year while U.S. futures aimed to a fall of about 0.3% at the open on Wall Street. With the investors still recovering from last year’s drop in global community prices together with sharp sell-off in Chinese markets, 2016 seems to have brought more pain for investments portfolios by way of developing slowdown in the global economy together with volatile Chinese markets. Beijing by setting another firm fix for its currency has eliminated the gap between offshore and onshore Yuan exchange rates.

China Continues to Inspire Degree of Stability

This was intended to encourage state banks in buying up Yuan in Hong Kong, driving up the overnight deposit rate fixing to 66.8%. According to Mitul Kotecha, currency strategist at Barclays in Singapore, `China continues to inspire a degree of stability after the sharp volatility at the start of the month by announcing stable to firmer fixings.

 Tighter liquidity had contributed to a squeeze on long USD/CNH positions and would mean investors tend to be guarded of shorting CNH in the near term’. Weakness in the commodity market from the start of the year had showed no indication of easing though as Brent and U.S. crude futures had fallen around 2% to new 12-year lows and both played with a break below $30 a barrel.

Money market futures are beginning to price out this year, the opportunity of multiple hikes in rates by the Federal Reserve, with just around 50% chance of a second hike price. Futures had been fully pricing in two rate increases at the beginning of the year.

Oil Sinks to Biggest Weekly Decline of 2015 after IEA Warning

Oil Dropped to Major Weekly Decline – IEA Emphasised Excess Level of Global Crude

Oil dropped to its major weekly decline of the year after International Energy Agency report emphasised the level of the global crude excess. The energy monitor - IEA, informed that low prices are taking a toll on supply. However, producers have not scrambled back to make dent in the stockpiles. For six straight sessions, oil had fallen, in registering its massive weekly percentage decline of 2015. The latest oil’s selloff that hadreduced prices by around a third since the beginning of the year has started rattling stock and debt market again.

The Dow Jones Industrial Average was down by 270 points recently and the Junk bonds which were also whirling from a fund’s closure had also collapsed. January delivery of U.S. oil futures had fallen by $1.14 to $35.62 per barrel on the New York Mercantile Exchange Brent, while the global benchmark had fallen by $1.80 per barrel, to $37.93 on ICE Futures Europe. Both had lost around 11% for the week, placing them down a third for the year as well as at their lowest settlement since the financial predicament.

IEA Monthly Report – World Oil-Demand Growth – To Be Relaxed

In February 2009, U.S. oil had last settled this low and Brent in December 2008 and the last time U.S. crude, had posted a six-session losing streak was in March. For Brent it was in mid-2014. In recent weeks, currency managers had abruptly moved against crude, constantly adding to bets on the falling prices. Recently the data released by the Commodity Futures Trading Commission, indicated only 80,474 additional bets on the rising prices than the falling prices, which is said to be the smallest margin in more than five years.

The IEA, in its monthly report had indicated that the world oil-demand growth would relax to 1.2 million barrel each day towards 2016 after flowing to 1.8 million barrels per day this year since support from sharply falling oil prices had started to disappear. Unrelenting strong OPEC production together with extra Iranian oil hitting the market in the next year would increase global inventories by around 300 million barrels.

Oil Would Rebound to $65

IEA has commented that `as inventories tend to increase towards 2016, there would be a lot of oil weighing on the market’. Prices of several oil company shares had revealed the notion that oil would rebound to $65 per barrel according to managing director at investment bank Tudor, Pickering, Holt & Co; Matt Portillo.

The prices together with the oil futures curve are presently below $60 per barrel all through 2024, and indication that a recovery seems very remote. Mr Portillo has informed that `it’s the slow meltdown which is being seen in the market presently’. Besides this, there also seems to be broad concerns regarding growth, particularly in emerging markets which in the earlier years had directed demand growth in raw materials.

Central bank of China had recently indicated its intention of changing the way it tends to manage the value of Yuan by loosening its peg to the dollar which could be a bad indication for oil demand in the second largest oil consumer in the world, according to senior research analyst at ClearBridge Investment, Dimitry Dayen, which manages the assets of $103.9 billion. He had commented that `if they tend to devalue their currency which is a bit of what is prevailing presently; the commodity will become more expensive locally and could drive the demand lower’.

Oil prices on the increase

Oil-barrel prices rose sharply Wednesday in New York, boosted by the weather and a report from the Fed to say the least optimistic about U.S. growth. The recovery of strength in the stock markets will do the rest. On the New York Mercantile Exchange, a barrel of light sweet crude for October delivery had soared to well over 3.32 dollars Tuesday, up to now the value of 89.34 dollars. Meanwhile in London, the price of Brent North Sea for the same period was trading at 115.80 dollars on the Intercontinental Exchange, rising 2.91 dollars so.

The price of crude rose sharply at the opening as markets react strongly to climatic conditions observed in the Gulf of Mexico, a region where most of the platforms provide a quarter of the oil consumed in the country. Investors have largely responded to the report published by the Office of Management and regulation of ocean energy resources (http://www.cmegroup.com/company/nymex.htmlBOEMRE), the latter indicating that, indeed, if Tropical Storm Lee, who reached Sunday Louisiana had inflicted no major damage, the fact remained that 37% of oil extraction and 18% of gas extraction in the area remained suspended Wednesday.

Although significantly a lower percentages of the values observed the previous day but at a level totally unexpected. Note also a possible disruption of production in Mexico, second largest exporter of crude to the United States while the National Hurricane Center reports that a tropical cyclone could pass within 48 hours, with a probability of 70%.

The price per barrel will also be benefited with the surge in global stock markets observed Wednesday, London and Paris rising more than 3%, while Frankfurt soared more than 4%. Another positive: the report of conditions contained in the Beige Book Federal Reserve (Fed), economic activity in the United States continued to grow at a moderate pace. An ad that has the merit of ending the cycle of bad news experienced in recent times.

How will be the crude oil prices in the months to come?

How will be the crude oil prices in the months to come?
The crude oil prices which was hovering around 12 to 15 dollars in 1998 has started the rally from that level towards 145 USD in 2008. A correction was set from that level.



Before the end of 2008, it tested USD 30 region and bounced back towards 80 USD. Since then it is trading in the region between USD60 and USD80.


Technically every Markets peaked in 2008 except Gold. Crude oil also peaked in 2008. The peak of Crude Oil was coincided with the start of recession in all global Economies. The demand for Energy was slowed by the slowing down of global economies. So the prices of crude oil stabilized around 70 USD in 2009.


Unless the Global Economies start showing growth the demand for Crude oil is more less would be the same. There would not be significant increase in the demand.


No Economic cycle shows fast decline followed by immediate growth. It will surely take to start the next cycles, which means we are likely to see some more years of downtrend.


Until then, we can be sure that oil prices would move above the 80 Dollars mark in the near future. Technically also, any which corrects itself more than one third will see a severe bear market. So, crude oil prices are likely remain in a range below USD 80 for few more years.


I may not be astonished in seeing Crude below USD30 in another 2 years.