A roller coaster ride for the Swiss franc
The FX market continues to be driven by the Italian and Spanish political developments; however, the risk-off sentiment has eased somewhat as investors take a step back to re-evaluate the situation. EUR/USD is up 0.50% this morning as it climbed back towards 1.16 after having reached 1.1510, the lowest level since July 2017. European equities, and more specifically Italian ones, were better bid on Thursday morning with the FTSE MIB rising 0.80%, while the Eurostoxx 600 edged slightly higher by 0.05%. Italian treasuries were also better bid with the 2-year yield easing to 2%, while the 10-year one stabilised around 3%.
Against the backdrop of rising Euroscepticism in the The Swiss franc had a bumpy late European session yesterday as USD/CHF hit 0.9983 before falling 1.33% to 0.9851. The currency pair end up the day around 0.99. EURCHF fell as low 1.1368 before bouncing back to 1.1439. Given the sharp depreciation of the euro of the last few days, a period of consolidation would more than reasonable. Even though investors have taken a more risk-on approach on the FX market, the sentiment on the equity is still mostly negative.
Weak oil
Global risk aversion triggered by political risk mounting in Italy hit crude oil prices hard. Following Friday massive selloff in crude as mixed message from OPEC seem to suggest production cuts might not last. The catalyst for the non-financial markets move was news that Russia and Saudi Arabia had suggested that output quotas might be flexible (however, other producers have voiced opposition). The failure for crude prices to hold the high ground is clearly a bearish indicator in the short run. The liquidation of massive short indicates that downside correction could be significant. Current pricing is more than just extended long trade, but fundamental concern of slowing global demand and higher product from non-OPEC members. Traders will be watching API inventories with expectations of 500k barrel outflow projected. In addition, monthly EIA report will provide details on supply trends. There is increasing evidence that swelling US output will undermine OPEC driven supply cut efforts. Given the current macro backdrop we continued to see downside in crude oil prices.
