Iran Negotiations Hit a Wall

Daily Analysis - 01/04/2015

Deadline for Iran Agreeing to Framework Deal is this Morning


After months of negotiations, the final hours for reaching an accord are upon Iran as the P5+1 give the nation until this morning to sign onto a deal. Any deal will extend negotiations to achieve a final accord in June, but a failure could send the Middle East reeling as regional powers engage in an arms race and stoke tensions further.

API Smashes Expectations

Oil prices continued to trend lower on the session as inventory data from the United States outweighed news that the Houthi Rebels had managed to move into a Yemeni military base on the important Bab el-Mandeb Strait. API crude stocks showed that US stockpiles rose by 5.2 million barrels, beating expectations of 3.5 million barrels, as the streak for rising inventories hits 12-straight weeks. This saw crude prices fall modestly, but the gains in inventory were slightly overshadowed by continued wrangling over a nuclear accord with Iran. The nation has until this morning to agree to a framework deal with the P5+1 which remains elusive. Aside from the nuclear negotiations, today’s EIA inventory figures will likely confirm a build that exceeds forecasts once more as storage space fills rapidly.


San Francisco Housing Signaling Weakness

The Case-Shiller home price index confirmed yesterday the slowing rate of appreciation in US housing, noting that San Francisco in particular witnessed the most accelerated slowdown of any other real estate market. The region which is noteworthy for having predicted previous boom and bust cycles, especially in the wake of the previous technology bubble is showing that real estate values might be increasing “stretched.” Although consumer confidence figures managed to surpass expectations and grow month over month, it was not enough to buoy equity benchmarks which fell across the board, led by a -1.11% loss in the Dow Jones Industrial Average. Much of the weakness was attributed to a weak Chicago PMI reading which missed forecasts by a wide margin with economic activity broadly continuing to disappoint.


Japanese Data Highlights Abenomic’s Failures

Survey data released from Japan overnight highlighted the epic failure of Abenomics to restore growth in the Japanese economy. Manufacturing metrics specifically have sunk to multi-month lows with companies choosing to forgo investing in capital expenditures, which fell to a two-year low, as expectations about the outlook sink. The poor data sent the benchmark Nikkei 225 and USDJPY lower on the session, causing a brief crash in American equity futures before a modest rebound. Across the Sea, Chinese manufacturing figures surprised investors, managing to rise back above the expansionary threshold after disappointing expectations in the previous reading. However, the positive data points are not reducing expectations of further policy easing from the People’s Bank of China as the offshore Yuan gains against the dollar.


Brent Crude Oil Head and Shoulders Technical Pattern

With further weakness projected for the crude oil market despite the risk of a breakout conflict in the Gulf, Brent crude oil prices continue to follow WTI to the downside.   With global output increasing in pace and production levels near records for certain regions, lacking demand will see oversupply continue to pressure prices lower. The spread to WTI has narrowed below the historical $8-10 points, contracting to approximately 7 points as weakness persists. The head and shoulders bearish technical pattern has a downside bias with prices sitting on major support at $54.70 per barrel. Any break below could pave the way for further losses in Brent and a possible test of $53.55. Any move above resistance at $56.62 should be treated as a reversal.


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