Crude Slide Resumes

Daily Analysis - 08/06/2017

Oil Prices at 1-Month Low After Biggest US Inventory Build in Months


Oil futures tumbled -4.00% on Wednesday to record their biggest decline since March after an unexpected gain in US crude stockpiles spooked investors, sparking a swift sell-off.  Although tensions building in the Persian Gulf following could spur an added risk premium for prices, energy futures have since recovered only modestly.

Barrage of Bad News Damages Energy Sentiment

The latest figures published by the US Energy Information Administration showed a 3.295 million barrel increase in stockpiles to 513 million barrels during the week ended June 2nd.

The figure confounded analysts who had forecast a decline of 3.447 million barrels for the period, especially a day after preliminary figures from the American Petroleum Institute suggested an even bigger drawdown. The latest evidence of a glut coincided with a heated war of words between top producers Saudi Arabia and Iran that threatens to thwart the recent agreement to restrain output.

Iran turned furiously on Saudi Arabia, accusing it of masterminding Wednesday’s attack by Islamic State terrorists on the country’s main parliament building.

Brent Crude August futures were last trading around the $48.40-mark, with any drop below the strong support at $48.00 a barrel potentially unlocking further downside.


US Consumer Credit Growth Slows

Consumer borrowing in the US decelerated in April to the slowest growth rate in nearly 6-years.  Fresh figures compiled by the Federal Reserve indicate that outstanding consumer credit increased by $8.20 billion in April on a month-over-month basis to grow at a 2.58% seasonally adjusted annual pace.

This marks the slowest monthly change since August of 2011, when consumer credit slipped at a -3.51% rate. Economists polled by The Wall Street Journal were expecting a $15 billion gain in April. Revolving outstanding credit, which comprises mostly of credit card debt, rose by 1.80% on an annualized basis, outpaced by the increase in non-revolving credit, consisting mainly of student and auto loans, which grew at a 2.90% annual rate.

After pulling back, Nasdaq futures are trading just below a record high of 5895 reached back on Tuesday.


German Factory Orders Fall

Factory orders in Germany recorded a sharp decline in April in a sign that growth in Europe’s biggest economy may be moderating after a strong start to the year. Adjusted for seasonal fluctuations, orders fell -2.10% in April, following an upwardly revised 1.10% expansion in March.

The reading compares with a median estimate of a -0.30% drop forecast by a Bloomberg survey of economists. On a year-on-year basis, orders were up 3.50%, when adjusted for working days.

The factory orders report came just a day ahead of the European Central Bank’s decision due later in the session as the Governing Council meets to determine whether the Euro Area economy is strong enough to withstand a gradual tapering of asset purchases.

Following the record close in DAX futures last week, the equity index has remained under pressure, edging lower early Thursday to last trade around 12685.


Chinese Export Activity Gains Momentum

China reported better-than-expected export and import figures for the month of May, suggesting the economy is holding up strong despite a rise in lending rates and a cooling property market.

Last month, exports surged 8.70% from a year earlier, while imports jumped 14.80% according to statistics compiled by the General Administration of Customs. That left the country with a May trade surplus of $40.81 billion, missing expectations of the figure widening to $46.32 billion.

While exports have managed to rebound and stay positive largely on the back of a global economic expansion, import growth has also proven to be resilient in recent months amid strong demand for iron ore and other commodities, sending the figure well above the 8.50% increase forecast.

In the meantime, AUDNZD, which is prone to fluctuations in major Chinese economic data, has reversed from earlier lows to trade around 1.0475.


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