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Oil and euro in the spotlight as new week begins

Summary:

  • Oil prices trade notably lower in the morning following a Trump’s tweet regarding rising output by Saudi Arabia
  • Euro roiled by German politics despite a migration deal agreed last week
  • A bag of macroeconomic releases coming from Asian economies

As the new trading week is slowly unfolding oil and the shared currency are in the limelight due to reports published over the weekend. Let’s begin with the former, oil prices are trading noticeably lower in the morning (both grades are down over 1% as of 6:19 am BST) following a Trump’s tweet we were offered on Saturday.

link do file download linkTrump wants Saudi Arabia to boost its oil production so that lower prices globally. Source: Twitter

The above tweet is responsible for oil underperformance seen in early trading on Monday as it suggests US President Donald Trump keeps seeking ways to bring oil prices down. Notice that Trump mentioned Saudi Arabia would increase its output by 2mbpd, this is more or less the amount of spare capacity the country holds currently. Following the Trump’s tweet the White House released an official statement which, however, lacked any mentions with regard to the precise amount (2mbpd) how much Saudi Arabian crude output would be raised. On the other hand, the statement said that "King Salman affirmed that the Kingdom maintains a two million barrel per day spare capacity, which it will prudently use if and when necessary to ensure market balance". We will see how this topic is going to play out, but right now it is clearly oil negative. Nevertheless until real steps from Saudi Arabia are taken the adverse impact on crude prices might turn out to be temporary.

link do file download linkBrent prices slumped when the market opened, and they have not been able to recover as of yet. The nearest support might be found at around $77.8. Source: xStation5

The second topic everybody is watching for in the morning is German politics which saw the euro see-sawing over the recent hours. Let us remind that on Friday the EU leaders worked out a preliminary migration deal being the major sticking point for Angela Merkel. Even as the first comments from CSU members sounded promisingly, moods deteriorated over the weekend after the Bild reported that the CSU leader and interior minister Horst Seehofer has rejected the migration agreement German chancellor negotiated last week. It increased odds for Merkel’s ousting anew weighing on the common currency when the FX market started. However, relief came a bit later when we were offered reports that Seehofer is going to resign as the CSU chairman as well as interior minister. In turn, the latest news said that both CDU and CSU are going to meet again this evening. Discussions will be probably focused on the migration deal and a potential Seehofer’s resignation. As for 6:43 am BST the euro is trading 0.4% lower against the dollar.

link do file download linkThe euro has been recently impacted by German politics, and this time seems to not going to be different. The pair is likely to continue falling unless a breakthrough during today’s CSU/CDU convention occurs. Source: xStation5

Looking elsewhere one may notice that Asian stock markets have begun this week rather on the wrong foot as both the Japanese NIKKEI (JAP225) along with the Shanghai Composite are set to end up the first trading day with a loss exceeding 1.5%. Over the past hours we got an avalanche of macroeconomic prints, but just some of them appear to deserve more attention. First and foremost, Japanese Tankan indices managed to improve in the second quarter with the outlook for manufacturing and non-manufacturing sectors being slightly higher compared to the first three months of the year (it concern large companies, because small companies’ backdrop did not evolve at all). From Australia there were two manufacturing PMIs, the first one from AIG showed a slight deterioration in June to 57.4 from 57.4 whereas the other one from CBA produced 55 points compared to 53.2 in the prior month. The Australian dollar is trading slightly lower as for now ahead of the Reserve Bank of Australia meeting taking place tomorrow evening, but no changes are expected. Last but not least, the Chinese Caixin PMI for manufacturing brought a negligible decline to 51 from 51.1.

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