Although all attention is on the bonfire that is oil prices today, the oil price collapse is being felt across other asset classes.
The emotional week that had been the lot of commodity traders gave no respite today in Asia. The global sell-off in anything that seems to be dug or pumped out of the ground continued apace with Dalian iron ore futures in China limit down again for the 2nd day in a row. Shanghai steel futures were also smelted aggressively. But it was crude oil that took the centre of attention.
But it was crude oil that took centre stage. Both Brent and WTI followed last night’s 5% sell-off with another quick fire 4 % tank to the downside as they broke their overnight New York lows. To their credit, both have since made all of those losses back to be almost unchanged from last nights close into Europe. The price action had a certain stop-loss smell about it with an algorithmic fill at the worst touch.
The reasons have been talked about extensively, but it is worth noting that oil by my reckoning is off around 9 % for the week leaving OPEC looking down the barrel (not an oil barrel), ahead of late Mays will they won’t they meeting. Although today’s bounce back has been impressive, it would be a brave man to pick the bottom of crude oil now. If this price action can’t grease the wells for a production cut extension, I don’t know what will.
The Europeans and the Japanese will probably not be happy either. Both are busily quantitatively easing, and their growth targets may come under severe pressure if China has in fact sneezed. A sustained commodity (read oil) sell-off may torpedo their inflation KPI’s as well even if they can label it just “transitory.” This is a theme that few seem to have thought about yet.
Of course, it’s not just oil that has felt the chill winds of potentially higher U.S. rate and a China slowdown. Copper has also been beaten out of shape, and the flow through from oil has made its presence felt in other markets. Maybe the saying that when the U.S. sneezes, the rest of the world catches a cold, should be swapped out with when China sneezes?
For some other markets with a high beaten beta to oil and hard commodities, the picture isn’t so bright either.
EUR/NOK
The NOK/Oil correlation trade has been back with a passion for the last couple of weeks. Being pretty much a one-way trade from 9.2000 two weeks ago, until the highs of 9.5800 today in Asia. Like both crudes, it has made a sprightly come back into Europe with NOK rallying to 9.4900 in early trading. With such a high correlation, it may have done enough for the week unless oil tanks again this evening.
Looking at the technicals, 9.5800 is, in fact, a double top and first resistance. Above this, we have a triple daily top from December from the 9.7400 region.
Support is hard to find with nothing until the 9.2500 breakout level and then 9.0700 which bisects the 100 and 200-day moving averages.
USD/CAD
Has rallied nearly 100 points in 24 hours from 1.3700 but has significantly, just failed ahead of 1.3800 today before rallying back to 1.3760. In the short term, its rally coincided with the bounce in oil after Asia’s sell-off suggesting that at these levels, it may need crude to collapse again to make progress topside ahead of today’s Non-Farm Payrolls.
Still, in the bigger picture, the chart does not make happy reading with asthmatic economic data, worries over mortgage lenders AND commodity prices combining to make the Loonie (CAD) look unloved still in the bigger picture.
USD/CAD has resistance at 1.3800 with a daily close implying a possible technical move to 1.4000. Support is found around 1.3600 and then 1.3525.
AUD/USD
The lucky country dollar finally succumbed to the iron ore, copper, gold, silver, oil sell-off today. Giving up support at 7400 to finish just below around 7390.
A daily close below the former implies AUD could move towards the 7300 level and then possibly 7150 after that. Resistance lies at the 7450 area and then 7550.
AUD’s fate is tied to China’s though, given that China buys everything that Australia digs out of the ground. China data, absent a lethargic RBA on the monetary policy front, should be followed closely. One could say that when/if China sneezes, Australia contracts TB.
AUSTRALIA 200
Unsurprisingly the ASX 200 has been on the back foot all week. Even less surprisingly is that it has been led lower by mining and energy companies of which Australia has many. Today’s move in oil and iron ore twisted the knife further in, but Australia has been grappling with other issues.
Most notably an over-valued property market in Sydney and Melbourne, with an increasing militant RBA willing to do something about it. Asthmatic unemployment and wage data leaving the RBA unable to raise rates to counter the above and reaching for the RBNZ’s macro-prudential handbook.
The ASX is worthy of a full-colour high definition chart today. The technicals show the ascending triangle is looking in some danger now. The ASX has failed around 5950 four times now since March.
From its present 5835 level, we have initial support at 5785, the April lows. Below there the ascending line part of the triangle and solid support comes in at 5770 with the 100-day moving average just below that at 5749. This 5740/5775 area becomes must hold support in the bigger technical picture?
With multiple failures at 5950 and what looks like a looming test of longer term support, the question is, could this commodity sell-off induce the first long-term top in a developed stock market in well, a long time?
