Oil leads FTSE volatility

Oil prices continue to dominate trading, with the FTSE 100 exhibiting major volatility and unpredictability in a largely mixed session today.

Oil barrels
Source: Bloomberg

Arguably, the correlation between oil prices and the FTSE is as strong as it ever has been, and with oil breaking towards multi-year lows this is not a good sign for stocks.

The positive influence felt by strong Chinese data overnight is all but forgotten by now, and instead the feeling is that markets are nervously preparing for the Federal Reserve decision. For that reason, the choppiness seen today could provide a format for future trading as we head into Wednesday’s announcement.

Just when we thought Mario Draghi’s incessant jawboning was off the table, back he came today, announcing that the European Central Bank would not hesitate in implementing further stimulus should it be deemed necessary.

The rather muted impact seen from today’s comments show that perhaps Mr Draghi is beginning to hold less sway after he pulled a somewhat unimpressive rabbit out of his big hat this month.

With the tie up between Shell and BG approaching completion, the picture is beginning to look somewhat less rosy, leaving many wondering whether a deal represents good value given the fall in oil prices.

Job losses totalling 2800 and cancellations to strategic investments highlight a sector fighting to keep its head above water. With the deal reliant upon retrieving $90 per barrel by 2020, the continued slump means Shell shareholders are likely to get increasingly cold feet on the deal as long as crude prices tumble.

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