Markets mixed after relaxing bank holiday
It’s been a slow start to the trading week following the long bank holiday weekend, with European markets once again mixed and US futures offering little of more interest.
The lack of direction at the start of the week isn’t surprising given the quiet bank holiday weekend but thankfully, things should pick up. Earnings season has got off to a better than expected start and we have a large number of companies reporting over the next few days. It’s still expected to be a challenging quarter for the corporates but the bar has been sufficiently lowered which may allow them to get through the season relatively unscathed. We’re certainly off to a good start on that front with US markets very close to record highs.
In the UK we’ve been granted a short break from Brexit – to everyone’s relief – which means news flow is light. The economic calendar is also a little bare, with a couple of central bank meetings – BoJ and BoC – and US GDP this week the only standout events. It’s perhaps no surprise then that people have become far more interested in the oil markets, one of the few areas where we are seeing some activity as Iranian oil wavers near expiry.
Oil continues higher as sanctions waiver expiry nears
Oil prices are creeping higher again on Tuesday, although they have lost a little of the spark that saw them steamroll through yet another key resistance area at the start of the week. There isn’t much doubt about the trigger for the latest rally, with Trump’s decision not to extend waivers on imports of Iranian oil beyond May unsurprisingly providing further upward pressure – although I’m sure he’ll just blame OPEC.
The rally took gains in WTI to more than 50%, since it bottomed out back in December. That’s not a bad return and makes the OPEC+ meeting in June all the more interesting, with an extension to December now a doubt, especially with Russian support already a doubt. Reports that Saudi Arabia and UAE will make up the shortfall from the sudden decline in Iranian output is doing little to stop the moves, given that both are currently cutting production to comply with the agreement.
Gold enters into tight range after breakout
Gold has held steady in a tight range over the last week, with the break below $1,280 so far failing to trigger a larger decline. This had been a strong area of support since the start of the year so a break below had the potential to drive further losses but instead we’ve just consolidated. That’s not to say further downside won’t follow but it was concerning that the greenback rallied strongly on Thursday and gold barely moved, in fact it actually posted slight gains. Not what you’d expect in a very bearish market.
So we now find ourselves in quite a tight range between $1,270 and $1,2800. A break lower will draw attention to $1,260, the next notable area of support, while a break back above $1,280 would make $1,290 very interesting. These are tight ranges but that’s where we find the gold market at the moment.