18 days into 2016 and we see a sloth of bears roaming in the market. Dow Jones lost 8%, Shanghai Composite Index crashed 17% and oil lead the pack by diving 23%. The decades of sanctions imposed on Iran, a member of the Organisation of Petroleum Exporting Countries (OPEC), are finally lifted over the weekend. Supply is likely to increase, adding pressure to oil prices. Unless OPEC and other oil producing countries cut back their productions, it is possible to see low oil prices for the rest of 2016.
WTI opened below $29 per barrel at the start of this week. On the daily chart, the bear has yet to show signs of weakness. Trend traders could be waiting for pullback in prices to hop on the bandwagon.
The currency market is also seeing weakness in commodity-linked currencies and strength in safe-havens. The Aussie and Kiwi dropped around 8% against the Yen, and lost around 4-5% against the Greenback since the start of 2016.
Low oil price poses a challenge to Central Banks who are looking to hit their inflation targets. We believe oil price, among other economic data, is on the radar of the Federal Reserve, as they are on the path of tightening. At this stage, we do expect the Fed to be more cautious and we may see lesser than 3-4 rate hike this year, which was the number of rate hike market anticipated before the start of 2016.
2 Central Banks are scheduled to announce their interest rate this week. We expect the European Central Bank (ECB) to keep their interest rate unchanged and maintain a cautious tone in their statement. Canada is one of the victims of crashing oil price. Market expects Bank of Canada (BOC) to slash their interest rate by 25 basis points from the current 0.5%.
Top News This Week
UK: CPI y/y. Tuesday 19th January, 5.30pm.
We expect figures to come in at 0.0% (previous figure was 0.1%).
Canada: Official Bank Rate. Wednesday 20th January, 11pm.
We expect figures to come in at 0.25% (previous figure was 0.5%).
Europe: Minimum Bid Rate. Thursday 21st January, 8.45pm.
We expect figures to remain unchanged at 0.05% (previous figure was 0.05%).
Fullerton Markets Research Team
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