Oil firms vulnerable as price weakens

Heading into the close, the FTSE 100 is down 20 points, losing ground as oil price weakness knocks back energy stocks.

Crude oil processor
Source: Bloomberg

Bullish run for UK markets comes to an end

Markets have run out of reasons to be particularly bullish over the last two days, having enjoyed such an excellent time last week thanks to the Federal Reserve and the Bank of Japan. There has been a growing sense that the equity market is ‘rolling over’ in the manner of an obedient Labrador, as gains are booked and pre-non farm nervousness sets in.

Oil firms are becoming more vulnerable by the day, and production cutbacks become almost inevitable among the major names if the crude price falls further. A similar situation prevails among gold and silver miners, meaning that even if other indices power on ahead, the FTSE’s heavy mining contingent will ensure that it gets left behind. Investors with their eyes solely on the UK would do well to look elsewhere.

Investors eye potential Dow drop

Americans go to the polls in mid-terms today, but regardless of the winner in the political contest the stock market looks set for a good few months. The post-midterm period has historically been an indication of strong performance to come, both in the final quarter of the year and in the first of the next. Clearly there are reasons for concern even now, but with Ukraine and Ebola both receding as threats and the eurozone looking quiet for now the spring feels like it is being coiled.

Two or three weeks of indecisive trading, or perhaps even a quick drop to 17,000 on the Dow Jones, would be the ideal setup for many investors as the year heads towards its conclusion. 

Equities continue to push higher

Another day and another rout in commodity prices, which seems to be the standard setting for markets at present, even as equities seemingly push higher by the day. Such a disconnect cannot go on for ever, and sooner or later one of these markets will correct. However, for the time being the disparity remains and so long as global economic growth looks fragile (witness the shifts in European forecasts today) it seems commodities seem to have the weight of evidence behind them.

Add a stronger US dollar into this mix and more downside is on its way. A growing recognition of this should see remaining long positions trimmed as the week goes on.

Euro rise aided by suggestions about ECB

A trimming of dollar longs has seen a slight boost to the euro and the pound ahead of key central bank meetings this week. The rise in the euro has been aided by suggestions the European Central Bank is undergoing some kind of revolt among national central banks, annoyed at what they perceive as policy being made ‘on the hoof’ by Mario Draghi. Time is short for a major rally in EUR/USD however, and any sign of good US data is, as was the case on Monday, an excuse to buy the US dollar. Further losses in the direction of $1.24 look likely.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.