Black Friday is looking a little dreary as electronic and consumer good are not the only things on sale with fire sales occurring on both equity and commodity markets. A couple of things to note, however. traders have been in risk reduction mode all week that suggesting markets are running light on risk and today’s moves might be aggravated by liquidity, but frankly, it’s not too surprising given that oil prices have gone from bad to worse.
S&P 500 closed -0.66% on the day, while WTI sold off -6.5%. Bonds were bid across the board, while the USD haven appeal was back in fashion ahead of next weeks G-20 while a sharp move lower on the Euro was exacerbated by Eurozone PMI as business activity slows noticeably.EURUSD dropped sharply on the print. German yields are lower, and the Euro has hit the skids into the bell now checking the 1.1330 level in late trade
But the eye-watering 6.5 % plummet in oil prices is unmissable with uncontested bearish sentiment erupting through capital markets like an uncontainable oil gusher. Indeed, one of the biggest and quickest wildcats runs in some time. But everything that’s been identified bearish all week long remains intact, and while it’s challenging to locate one smoking gun, instead its a toxic combination of factors, highlighted by OPEC uncertainty, a very shaky risk environment, the precipitous swing on Fund positioning (based on CFTC report). But what’s unmistakable to oil patch veterans is just how mind-bogglingly bearish the Oil community has become on such short order. And as Brent spreads move from backwardation to contango its unlikely buy only funds or even passive investors for that matter will be attracted to the markets anytime soon. And with President Trump appearing to have Saudi Arabia over the proverbial ” oil barrel” there could be more pain to be had unless OPEC can pull a rabbit back out of the hat. But indeed it looks like the Genie is out of the bottle on this one.
With the USD emerging the winner into weeks ends bullish gold bets have ceded a few dollars into the close, but prices continue to hold substantial support levels given the plethora of risk events on the horizon.
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