Oil prices crash again, Italy and EU closer to budget deal

Summary:

• Oil prices plunged roughly 7% on Tuesday

• Italy strikes a budget deal with the EC, a spokeswoman at the economy ministry says

• May’s Cabinet agrees to implement plans for a no-deal break from the EU

Below the surface

Over the course of the recent hours we have seen relative calmness across equity and currency markets. Stocks in the United States attempted to get back some of their appeal they lost at the beginning of this week but rises were modest. The SP500 (US500) closed flat and erased its all gains seen during the session while the Dow Jones (US30) was up 0.35% and the NASDAQ (US100) rose 0.45%. The mood deteriorated along with crashing oil prices which ended the day with a 7.3% decrease (the West Texas Intermediate grade, Brent fell 5.6%). As a result, WTI prices touched their lowest prices since the end of August 2017 extending its tremendous slide begun at the start of October. The commodity was also burdened with an unexpected increase of inventories reported by the API which showed a 3.45 million barrels rise compared to an expected 3.25 million barrels decrease. It appears to underline that the US keeps pumping much more crude than it is needed resulting in a build in the overall inventory level. The official governmental data will be released this afternoon. Looking at the weekly chart the ongoing slide resembles the bear market seen in 2014 and it is already as big as the one observed in 2015 in absolute terms. Despite slight increases seen on Wall Street, Asian indices have been largely down on the day with the Japanese NIKKEI (JAP225) falling 0.6% and indices in Shanghai and Hong Kong declining 0.7% and 0.5% respectively. In the currency market we have not seen any noteworthy moves either. In general, the US dollar is being slightly offered this morning while NOK, SEK and NZD are the best performing major currencies gaining 0.2-0.3% at the time of writing. In the EM FX space one may notice that the South African rand is rising 0.6% and the Turkish lira is rising 0.3% - both are benefiting from the weaker greenback ahead of the FOMC decision later today.

WTI prices crashed on Tuesday and extended its huge slide begun at the beginning of October. Technically bulls may look for support nearby $43. If so, it would mean some pain for buyers in the upcoming days. Source: xStation5

Italian and British uncertainties

A tussle between Italy and the EU over the 2019 budget has roiled financial markets in recent weeks but it is coming to an end, these conclusions can be drawn from a speech given by a spokeswoman at the Italian economy ministry on Tuesday. She said that Italy has reached a deal with the European Commission over its contested 2019 budget and added that the accord would be formalized on Wednesday in Brussels. Let us remind that the revamped deficit target is 2.04% of GDP compared to the initial value of 2.4%. These upbeat comments were also repeated by Italy’s Prime Minister Giuseppe Conte saying that “the Commission to take a positive view of the country’s latest budget proposals”. If the deal is finally ratified, it will come this thread to an end and remove this risk weighing on the shared currency.

Meanwhile, the Theresa May’s Cabinet agreed on Tuesday to implement plans for a no-deal scenario securing 2 billion GBP of funds for contingencies and 3500 troops ready to support the government. PM May also said that she will put the terms she negotiated with Brussels to a vote in the Parliament in the week starting on January 14. Therefore, May needs to persuade enough lawmakers to vote in favour of it until then.

The EURUSD is climbing on the back of the weak dollar and some positive news from Italy. The first obstacle for bulls can be found in the vicinity of 1.1450. Source: xStation5

In the other news:

• Japan recorded a 737.3 billion JPY trade deficit in November, the number proved to be below expectations

• New Zealand saw a 6.149 billion NZD balance of payments deficit in the third quarter compared to an expected deficit of 5.935 billion NZD

• Chinese importers bought about 900 thousand tonnes of US soybean on Tuesday for shipment from January to March, according to traders with knowledge of the deals and the US Soybean Export Council