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Volatility within European and US equity markets appears to be rather elusive today, reflecting the risk and unpredictability that is around the corner in the form of the FOMC interest rate decision. Fundamentals appear to have largely been thrown out the window of late, with markets across the board taking their lead from oil prices.
What would ordinarily be a blockbuster event has somewhat crept up on us, reflected in no small part by the reduction in speculative position taking in the days preceding the announcement. Sentiment is clearly geared more towards the notion that the FOMC could provide a relatively dovish stance, given falling inflation expectations and deterioration in global trade driven by the Chinese slowdown.
US crude oil inventories rose by the highest level since April 2015 last week, pushing overall oil in storage to near levels not seen in 80 years for this time of year. Crucially, we did see domestic production fall ever so slightly. This distinction highlights the reaction in global trade, which has seen oil prices rise off the back of seemingly bearish headline data.
With sentiment driven by record output from Iraq and Russia, alongside the entry of Iran on the mainstream oil market, any news that US output is starting to turn lower is certainly welcome for oil bulls.
Shell shareholders today voted in favour of a tie up with BG that is widely expected to create the biggest liquefied natural gas producer in the world. The biggest roadblock for the deal was always likely to be the perception that Shell is overpaying, given the deterioration of oil prices, which have halved since the terms of the deal were agreed in April 2015.
However, in such tough times, this provides a clue of one strategy which firms could look to as a way of bringing costs down by scaling up operations globally. The question is whether any of the other majors will follow suit, given that the internal cost-cutting phase is drawing to a close for firms in the oil and gas sector.
London risers and fallers
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Key charts to watch
An early session dip for the FTSE was swiftly cancelled out by lunchtime, with the index moving back to the highs of the week. If the Fed avoids throwing a spanner in the works 6150 seems to be the next big area to watch.