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July 11, 2016

Crude extend declines, pound tests 1.2850 ahead of BoE decision.

Crude extend declines, pound tests 1.2850 ahead of BoE decision.

Consumer prices index (CPI) YoY rose by 1.9% in June, according to the latest data of the National Bureau of statistics of China. Inflation slowed to the lowest level since January.The reading was slightly above the forecast as market experts polled by the Wall Street Journal had median estimate at 1.8%. Consumer prices in China rose by 2% in May.The drop in inflation was mainly caused by slowing growth on food prices to 4.6% from 5.9% a month earlier. Prices of nonfood products rose by 1.2% in June 0.1% higher than in May.

It’s important to note that inflation in China remains considerably below the PBOC’s  target at 3%, giving the Central Bank opportunity to maintain soft monetary policy amid the continued weakening of global economic recovery.

Producer prices index (PPI) decreased last month by 2.6% annually, after falling to 2.8% in May. Producer prices in China have been falling continuously for more than four consecutive years, although lately they drop significantly slowed. Slowdown in the decline of producer prices can be a sign of rebound in Chinese industrial sector.

Greenback soared in Monday after unexpectedly strong payroll data released last Friday with 267K headline reading, well above expected 180K. In may there were only 38K jobs created in US, worse since 2010 which, however, was considered as a statistical deviation. June data proved that it was quite imprudent to judge about the growth of US economy taking into account the drop in May.

USDX rose 0.45% to 96.74 with EUR/USD dropping 0.16%, but GBP/USD going below 1.29 level. CFTC positions on 8th of July showed net positions on pound decreased to -49K vs. -42.7K from previous week. It could mean that traders build their bearish positions ahead of BoE interest rate decision where traders price in 79% of chance of rate cut in UK which is likely to push pound lower.

gbp

USD/JPY saw eased bearish pressure as ruling party of Japan won elections in the upper parliament and monetary easing speculations.

Crude prices dived deeper below $45 on stronger US Dollar, WTI -1.56% at 44.70, Brent -1.43% at 46.09. Investors quit commodity market and move into defensive assets which could be a warning bell for risk-hunters and traders seeking for a bullish entry. CFTC reports indicated large speculator cut their long positions while mounting short ones.

 

oil

Prices are expected to extend declines to $40 psychological barrier as post-Brexit risks concerns are growing and global oil surplus show the signs of worsening, what makes difficult for Oil bulls to remain optimistic.

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