Crude Stabilizes Following EIA Data

Daily Analysis - 27/04/2017

Big Drawdown in US Oil Inventories

Crude oil gave up much of the gains made on Wednesday despite US government data showing a larger-than-projected drop in inventories. Buyers failed to plot a breakout from the recent trading range, indicating that bearish pressure is still the dominant market force.

Brent Precariously Poised

Data from the US Energy Information Administration showed Wednesday that domestic crude stockpiles dipped by -3.641 million barrels for the week ended April 21^st. However, despite a decline after two weeks of inventory builds, production hit a new cycle high of 9.265 million barrels, weighing on sentiment and prices. Brent received a boost earlier on Wednesday when Saudi Energy Minister Khalid al-Falih said his country was interested in talks between OPEC and non-OPEC producers to help stabilize prices which have recently fallen.

Brent has been steadily declining after hitting an April high of $56.50 a barrel, with the benchmark locked in a tight trading range since the start of the week. From a technical perspective the bias remains bearish, with a break below support at $51.50 likely to unlock further downside. Brent July futures were last trading around $52.13 per barrel.

Bank of Japan Upgrades Economic Outlook

The Bank of Japan has opted to keep ultra-easy monetary policy unchanged, reiterating that inflation was still lagging behind its forecast. Nevertheless, the Central Bank offered a more upbeat view of the economy, signalling the export-driven recovery was well on track. In a widely anticipated move, the Central Bank maintained the 0.10% interest it charges to financial institutions for a portion of their excess reserves.

The silver lining was the BoJ raising its real GDP forecast for fiscal 2017-18 to 1.60% from the 1.50% projected in January. It also cut its core consumer inflation growth forecast to 1.40% from 1.50% for the same period. Most analysts surveyed by Reuters now expect the Central Bank's next move to be policy tightening. The Yen moved only modestly against the US dollar following the announcement, with the pair currently hovering around the 111.350-mark.

France Jobless total at 7-Month High

The latest Labor Ministry data released on Wednesday showed that France's jobless total surged to a 10-month high in March. The number of individuals registered as out of work within the country rose to 3,508,100 last month, up 1.30% month-on-month, but down 0.90% from the same period last year. Analysts warn that the reversal from the series of recent declines could bring unemployment into the focus of the French presidential race.

Outgoing President Francois Hollande had been dogged by high unemployment throughout his five-year tenure. Nonetheless, separate data from national statistics bureau INSEE showed household concerns about unemployment fell to their lowest since the 2008 financial crisis during the month of April. After CAC June futures gapped higher last session, the index has so far failed to extend the rally, edging back below 5170.

NAFTA Assurance Boosts Loonie

US President Donald Trump told Canadian Prime Minister Justin Trudeau on Wednesday that he will not terminate the NAFTA treaty just yet, but would quickly move to begin renegotiations. Trump spoke over the phone with Trudeau, in what officials describe was a "pleasant and productive" conversation.

The White House was considering an executive order to exit NAFTA as early as this week, however, a split among Trump’s top advisers resulted in the latest announcement. Trump had promised during his election campaign to renegotiate NAFTA, and in the past few days complained bitterly about the ongoing Canadian trade practices, sending the Loonie to the lowest point since February of 2016. The Canadian dollar rebounded in Asian trade following the news, with USDCAD tumbling from a multi-month high, to trade around key support at 1.3550.