Gulf Coalition Airstrikes Shift to Ground Action

Daily Analysis - 22/04/2015

End of Coalition Airstrikes on Houthi Positions Sees Oil Prices Retreat

The conclusion of the bombing campaign against strategic rebel positions in Yemen was greeted with pessimism in crude oil prices despite the impending launch of a ground campaign intended to reinstate the government. Saudi Arabia is now preparing to launch a ground invasion, calling upon the elite National Guard to carry out the next leg of the operation.

Saudi Boots on the Ground

While the Saudis have announced an end the air campaign aimed at eliminating the threat of heavy weaponry in neighboring Yemen, the nation is preparing for a ground invasion to restore the government. Operation “New Hope” is set to begin imminently with Saudi King Salman primed to send in the National Guard. Coupled with the latest American Petroleum Institute Crude Stocks figure, oil prices fell on the Saudi declaration. API beat expectations by a wide margin, more than doubling expectations of a 2.600 million barrel build, printing at 5.500 million barrels. This marks 15-straight weeks of growth as EIA data due later today should confirm that US inventory growth rebounded after last week’s more moderated increase in stockpiles. West Texas Intermediate crude oil prices slipped below $56 per barrel this morning in heavy trading.

Japan Posts Trade Surplus

For the first time in four years, Japan has managed to post a trade surplus, numbering at 229.3 billion Yen. Imports plunged by -14.50% while export growth came in right at expectations of 8.50% expansion. Helping the nation reach a trade surplus has been the decline in energy prices. The rise in energy imports over the last few years come in the wake of the nuclear shutdown which has forced the nation to rely on traditional fuel sources like imported oil and gas for energy generation. A weaker Yen means that energy imports have grown more expensive, moving inverse to the direction of the Yen. While USDJPY has reversed lower since the overnight announcement, equities responded very positively with the Nikkei closing above 20,000 for the first time since the year 2000. USDJPY remains under pressure, trending just above 119.50.

Australian Inflation Falls

In his latest comments, Reserve Bank of Australia Governor Stevens has telegraphed to markets his intention to continue cutting rates. After spending months talking the Australian dollar lower, his latest remarks are aimed at providing guidance on the outlook as he seeks to strike a balance between a burgeoning housing bubble and a slowdown in the critical mining sector. Inflation data released overnight confirmed that the economy is in the midst of a slowdown with annualized CPI falling to 1.30% from the prior figure of 1.70%. Although not critical like the experience in both the United States and Europe, further accommodation from the RBA might be an imperative to sustain growth considering the global economic backdrop. The AUDUSD pair rose over 45 pips on the announcement, continuing to trend higher as the US dollar retreats against peers.

Silver Head & Shoulders Bearish Technical Pattern

Despite profit-taking in the US dollar and near-term weakness, silver prices have continued to trend lower as the prospect of higher interest rates spooks financial markets. With several Federal Reserve members confirming the shift in policy over the last few sessions, the Central Bank looks poised to raise rates at least once in 2015 despite the raft of bad economic data. Raising rates at a time of low inflation and low growth has typically not proven a good strategy to boost growth, however, policy normalization is the Federal Reserve’s objective. Silver continues to complete the right shoulder of the head and shoulder’s bearish pattern that has been in the process of forming since November. Silver prices are presently approximately $0.50 off of the major support level sitting $15.52. Any break below this key technical level would see bearish sentiment rise and momentum to the downside increase demonstrably.