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Oil drags stocks lower

The afternoon sell-off in stocks was triggered by the rapid decline in oil after Iran described the idea of an oil production cut as ridiculous.

Oil rig
Source: Bloomberg

Stock markets were subdued all day and the wheels were starting to come off in the latter half of the trading session, as traders started to become nervous that the small pullback could turn into something bigger.

That announcement by Iran that it was not going to freeze oil production sent the energy market lower and stocks quickly followed suit. The correlation between oil and equity is back to its old high self, and the remarks from the oil producing nation was just what the equity bears wanted to hear.

With the FTSE 100 now firmly below 6000, more losses are on the cards. While the DAX is under 9623 its outlook will be negative. US markets are also moving south and the next big support level for the Wall Street is 16,265, and US 500 sellers will be focused on 1911.

Sterling is still suffering after its major sell-off yesterday, and as the fear of a ‘Brexit’ circulates, the pound will be kept under pressure. GBP/USD has been in a downward trend since June, and the EU referendum has accelerated its decline, and bears are looking towards $1.40.

The euro has also been dented by the dollar and EUR/USD is dancing around the $1.10 mark. The currency pair has been sliding since 11 February and selling into strength has been the tactic of choice. EUR/USD sellers will be looking towards $1.0976 and $1.0926, and rallies will incur resistance at $1.1066.

Gold is on the rise again as the uncertainty in the equity markets is making the safe haven attractive.  The metal has resumed its upward trend that it has been since the start of the year and buying the dip has proved to be a popular strategy. $1217 is acting as support, and while it holds above it, additional gains are possible and bulls will be looking to target $1234.

Oil has taken yet another sharp downturn after Iran stated that freezing productions is ridiculous. This constant toing and froing between oil producing nations is exactly why the energy market is so choppy, and more importantly why it is difficult to imagine a coordinated production cut being implemented.

Iran was frozen out of the market for so long due to sanctions, it's now keen to recoup their market share, and this will keep supply high.  While Brent is sub $35 and WTI is under $33.50, their looks will be bearish.

 FTSE 100 risers and fallers (as of 4.35pm)

Company % change Index points
London Stock Exchange Group +13.71 +3.85
International Consolidated Airlines Group +2.23 +0.85
InterContinental Hotels Group PLC +3.5 +0.79
Persimmon +2.84 +0.66
Imperial +0.43 +0.6

 

Company % change Index points
BP -3.17 8.04
Royal Dutch Shell -2.63 -6.54
Royal Dutch Shell -2.54 -6.3
BHP Billiton -6.05 -3.96
HSBC -1.03 -3.5


Look ahead to tomorrow

Economic data:

2.45pm – US flash services PMI (February): expected 52.8, prior 53.2

3pm – US new home sales (January): expected 500,000, prior 544,000.

3.30pm – US crude inventories: expected 900,000 barrels, prior 2,147,000 barrels

Corporate reporting:

UK: Harworth Group, Rathbone Brothers, New World Resources, Petrofac Ltd, Weir Group Interserve, Man Group McBride, Barratt Developments, Hays

US:  Chesapeake Energy Corp

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