Brent crude continues moving sharply lower on today triggered by the deeper sell-off on global equities on concerns rising interest rates could severely derail global economic growth. But adding to the negative momentum the DOE monthly Short-Term Energy Outlook revised non-OPEC supply higher for 2019, which is leading more support to the supply side of the equations.
So with prospects of lower demand and additional supply in 2019, there has been no place to go but lower as bullish bets are heading for the exits with nary a substantial bid in sight.
If there a bearish surprise in tomorrows DOE weekly inventory report, selling will intensify two folds. With tail risk mounting, bullish sentiment has evaporated quickly.
Equity markets were pulverised today as investors remain in full out retreat and even the most pessimistic of equity bears are still in shock by the sheer magnitude of the move. This meltdown isn’t just a mild case of the sniffles suggesting the latest sneeze from the US equity market could morph into a global markets pandemic.
Presidents Trump’s scathing and ramped up attack on the Fed has the dollar bulls retreating as even the hint of policial interference on monetary policy is unsettling even if it doesn’t lead to the Feds taking their foot off the gas.
Speaking of worse case scenarios
The Yuan has such a far-reaching influence on regional markets but even more so as the markets are becoming very suspicious of Pboc currency policy. In the face of being declared a currency manipulator, they could discard the YCC and let the currency go (weaker)
It could be potentially destabilising for global markets as it could trigger colossal liquidation in China equities and will trigger capital outflows.
The tail risk if they did for shock value, even as a temporary retaliation to the US Treasury accusations. Eventually, they would need to intervene.
However, instead of using reserves they could sell US treasuries to raise dollars to sell back to the currency markets(USDCNH) creating a nasty feedback look that will trigger broader-based US bond markets sell-off and more equity collapse
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.