A quiet start to the week but do not be fooled
Martin Luther King Jr. day takes place in the US meaning liquidity has been light and will stay as such until Tuesday. But this shouldn’t devalue the potential eventfulness of the week, or the frothy optimism that continues to drive risk sentiment off the back of reduced trade tensions, better than expected stock reporting and last week’s auspicious US data.
In Asia, major benchmarks failed to meaningfully extend gains with ASX marginally higher +0.22% near 7,079, and S&P and Nasdaq futures finishing flat but still settling around record highs. FTSE and DAX are set to follow Asia’s mellow lead with both indices pointing to a respective 9pt and 17pt climb at the open, according to futures.
Plenty of event risk to get through
AUDUSD sensitivity to crude and iron ore saw the commodity currency stand tallest among G10, but still remain range-bound as it waits for a highly anticipated Aussie jobs report to tilt market pricing around the RBA’s Feb rate decision, which is currently split.
Looking ahead, a trio of G10 central bank decisions – from BoJ, BoC and ECB – and the release of European PMI and Aussie employment data, puts markets on standby as traders receive their first indication of what might be in store for central banks in 2020. All three are expected to remain on hold this week, so clues on how each might defy 2019’s considerable cycle of easing will prove most potent.
Over the next couple of days, earnings season also intensifies with Johnson & Johnson (JNJ), American Express (AXP) and Netflix (NFLX) a few of the major names set to report. If markets can avoid a crisis here in terms of earnings revisions and re-ratings, sprinkled with okay 12-month outlooks and signs of optimism, then permanent bears will have to wait a little while longer for an equities correction.
Libya offline reduces global oil supply
Political instability has once again gotten the better of Libya and in turn disrupted global oil supply, sending Brent Crude future prices +1.17% higher at Asia open. The Libyan National Army (LNA), under the control of Khalifa Haftar, has shut down key infrastructure in pipelines and sea ports vital to the export of Libyan oil across the Mediterranean. Without it, Libya’s oil production could fall by as much as 1.1m bpd – a significant hit to global oil supply if disruption is prolonged.
Incidents in the Crude complex are increasingly becoming the norm with the recent Abqaiq-Khurais drone attack in Saudi Arabia and US-Iranian tensions still freshly minted in the market’s memory. If this happens enough times, infrastructure risk premiums will become more sticky and won’t be taken off the table as easily like we saw when US-Iranian tensions subsided.
Higher crude prices bolsters sentiment around major oil and gas exploration companies so expect some sensitivity from BP (BP), Royal Dutch Shell (RDSa) and Cairn Energy (CNE) at the open. However, impairments and exploration write-offs should keep Tullow (TLW) subdued.
Temperature turned right down on Natgas
NYMEX Natural Gas futures had another rough day as it dropped 4.7% in Asia, making it four days in a row of losses and a cumulative 13% fall since last Tuesday. Nat Gas hasn’t been this low since March 2016. One reason that might explain the persistent trough is a decline in heating degree days representing a sizable shift in warm weather (thereby reducing demand) amid robust supplies.
