US futures lower, oil plunges ahead of EIA report

Markets stabilise but anxiety remains

Markets in Asia and Europe have found some stability once again on Wednesday, with Tuesday’s recovery in the US providing some relief to investors around the globe.

While we may be seeing some temporary respite, there is clearly still a huge amount of anxiety in the markets right now, which is evident by the fact that US futures are already deep in the red again. The US has been late to the game when it comes to the stock market sell-off, having been sheltered by last year’s tax cuts but they’re wasting no time in playing catch-up, with the S&P and Dow both fast closing in on 10% declines from the peak in a matter of weeks, while the Nasdaq has already ticked that box.

Trump has been quick to point the finger of blame at the Fed, with the President desperately not wanting to be associated with a stock market sell-off in the run up to the mid-term elections. Especially when he’s spent the last two years taking credit for the colossal gains. Rising interest rates has clearly been a factor in the loss of confidence in the stock market in recent weeks, with trade wars, Brexit, Italy’s budget issues and the Khashoggi murder also being important contributing factors.

China shares lead the way upwards, again

Italy told to redraft budget in unprecedented move

Rome’s stand-off with Brussels has moved into unprecedented territory after the European Commission requested a redraft of Italy’s budget for 2019. The move came as the populist coalition government blatantly defied the eurozone’s budget rules in a manner that Brussels simply couldn’t afford to overlook. Rome now has three weeks to submit a redrafted proposal and find a way to fit its campaign promises within the euro area budget framework.

Italy Sovereign Ratings

Source – Thomson Reuters Eikon


source: tradingeconomics.com

With the country’s debt having already been downgraded once this week – to one notch above junk – and facing another by S&P in the coming days, it doesn’t have much wiggle room with which to engage in a battle with Brussels. Rome does hold the populist joker card though and the EC will not want to stoke further anti-euro sentiment within the country if it can be avoided which means some form of compromise may be found.

Asia Market update : China equities on a random walk

Risk aversion and API data drag oil lower

Oil is trading on the back foot again on Wednesday, after coming under intense selling pressure as stock markets around the world crumbled. Brent and WTI got caught up in the risk-off markets and the API release later in the day didn’t offer any chance of reprieve as it reported a huge build of 9.88 million barrels, against expectations of a much smaller increase.

API Weekly Crude Oil Stocks

Traders remain bearish ahead of the official EIA inventory report later today, with expectations now likely heightened following the API number. These numbers can differ greatly though, with API last week reporting a small draw while EIA reported a 6.5 million barrel increase. The bullish fever that swept oil prices to four year highs earlier this month has rapidly deteriorated, as global growth concerns and the prospect of higher production from Saudi Arabia and others weigh. Brent is off more than 15% in only a few weeks and it doesn’t appear to be losing momentum.

Economic Calendar

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.