Markets weaker as oil prices weigh again

Heading into the close, the FTSE 100 is down 60 points, as oil prices begin to weigh on the index once more.

Oil poured into a drum
Source: Bloomberg

FTSE gains fade away

Oil certainly has the whip hand over the FTSE 100 at present, with the gainers of the morning in the energy sector fading rapidly away. Christmas might be just over a week away but we’re evidently still in a ‘sell the rally’ kind of mode. Santa rallies might be the norm, but blindly rushing is a bad idea at any time of the year and there will be a few overeager buyers nursing losses this afternoon.

One stock that is doing well is ASOS, which continues to enjoy positive momentum from figures last week. On the continent the situation is equally grim, with indices pushing through Friday’s lows. From this point onwards volume is going to be on a downward trajectory, which points to increased volatility even if the coming sessions see something of a rally beginning to take shape.

US data mixed

By comparison with Europe markets in the US are much calmer, but they have still proved to be in a weak frame of mind. A poor Empire manufacturing number did not help, even if production data was of a more optimistic tone.

Santa is supposed to be on his way, but gloomy predictions about oil prices provide little rationale for buying, especially in a week with a Federal Open Market Committee meeting on the calendar. Sentiment last week switched from dramatically bullish to excessively bearish, but reasons to buy have yet to be seen and thus the weakness of last week appears to have more time to run.

Precious metals on back foot

CrudeCrude oil gamely staged a rally this afternoon, but the shorters simply took the opportunity that they had been waiting for. The highs earlier in the day disappeared as fundamentals made their inevitable, but still tiresome, return.

OPEC’s denial that the fundamentals have nothing to do with price movement simply makes the situation worse, as it implies that the agency has given up even the pretence of control in these matters.

Precious metals were on the back foot as well, hit by the uncomfortable knowledge that the upcoming Fed meeting will offer little help, particularly if the FOMC goes to town on the oil-inspired damage to inflation outlooks.

Sterling in retreat

Devoid of weighty news, sterling is in retreat against the dollar once again. So far $1.56 has held firm but the level looks to be under serious threat this afternoon. Tomorrow’s CPI could be the make or break moment, with traders anxiously watching to see if November’s small rise was just a blip or the beginning of something more. Given the fall in oil, prices, the former looks to be the more likely eventuality, with the negative impression likely to be reinforced by the latest set of bank minutes on Wednesday. 

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