Commodities and Bankers

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Forex Market News

Oil

Oil spent most of the day sideways, despite an increase in inventories (read even more supply). However in the last 2 hours both the WTI and Brent futures markets has jumped 4%. Not much to read into this other than bargain hunters hoping that the low 44’s are the lows in oil. It may be, but I think it is just short term lows.

The US retail sales numbers were hugely disappointing to me. Down 1% for the month of December which includes all that Xmas shopping. So I see a fall in the US dollar, not a change in direction, just a pullback which is natural in the markets for it to do. A trend is never one-directional. The US economy is still showing signs of strength and growth and so the dollar dominance should continue. However, with the pullback we may see oil back above 50 for a short period.

The US retail sales numbers were hugely disappointing to me. Down 1% for the month of December which includes all that Xmas shopping. So I see a fall in the US dollar, not a change in direction, just a pullback which is natural in the markets for it to do. A trend is never one-directional. The US economy is still showing signs of strength and growth and so the dollar dominance should continue. However, with the pullback we may see oil back above 50 for a short period.

Copper

The big story for me is the last 2 days acceleration of coppers demise. Copper is the bellwether for Australia and the Aussie dollar. Being the dominant industrial metal it is an indication for all the rocks we dig out of our soil and sell offshore. In the two weeks of 2015 alone, copper has fallen 11%. The drop is being driven by lower production costs, thanks to energy, and reduced demand from the biggest consumer, China. Interestingly the Aussie dollar held up overnight. I see that more as greenback weakness and perhaps some yield chasing. There were some large volumes and moves going on in the bond market, and Australia has relatively high rates.

Euro

Elsewhere, the ECJ approved the ECB’s OMT…don’t you just love acronyms . Basically they gave Draghi the green light for his bond buying program and this clears the road for him to introduce further measures on the 22nd.  Even Carney got involved, suggesting that the ECB is doing the right thing and should continue. He (and this is why I think he is the best and smartest banker out there, no other has even mentioned this yet) also said the drop in oil prices in the past six months is a “net positive” for Britain’s economy.

Greece however it the thorn in the side of the Eurozone and Germany. Germany needs the Eurozone to stay together but Greece elections are threating this status quo and causing further uncertainty for the Eurozone’s economic health. The incumbent party is well behind in the Greek polls, the Syriza (the party that is well in front of the polls) has called for a write-down of the debt they owe Europe, about 180% of the Greek GDP. A default puts the ECB in a difficult position as they have said they loan is linked to Euro membership so may be forced to push the Greeks out. Syriza has no issue with this as they want out anyway. Merkel and the Germans would then fear the domino effect and potentially see other fringe dwellers exit the Eurozone. Germans, whilst fed up with paying for everyone else, need the Eurozone to be together so they get the advantage of the weaker currency. Anyway, it’s all very messy and could cause a huge imbalance if it does work out that way. I don’t see that happening though. If Syriza gets in I don’t see them writing the debt off. They will make another arrangement. Or Samaras will retain power and it will be carry on squire.

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