Rivkin: Global equities mixed but quiet, VIX down to 12, rumoured 'not cut' to OPEC oil supply, ASX futures down 1 point

The news that was anticipated with regard to the November OPEC meeting seems to have emerged, based on reports coming from the new agency Reuters. The Saudi oil minister has officially stated that a consensus has been reached across all Gulf Cooperation Council members, and Reuters has stated that a Gulf OPEC delegate told one of their reporters that the consensus was to not cut oil output. My guess is that markets have only tentatively priced this news in given it has not been officially announced, so the slight sell-off in oil markets will likely be reinforced a little more IF (and I must stress that this is not yet official, so watch your risk around this news) the reports are correct and the announcement that emerges restates a 'ceiling' rather than a 'cut' from the producers. As you can see on today's first chart, illustrating WTI and Brent prices, there has been no major change in the last 24 hours; however, the meeting is set to take place from 10am Vienna time, concluding at 4pm with an announcement from the President and Secretary General of OPEC. This equates to 2am Sydney time, being when I would expect some confirmation of what will happen and at which time I would expect greater volatility in these markets.

Looking at the first chart, you can see that both WTI (orange) and Brent (black) crude prices have tested these low levels earlier this month, but rather than pre-empt what markets might do if no cut to supply is officially announced, I would caution traders to step out of this trade and wait to see whether the restatement of a production ceiling falls into line with the market's expectation, as you could see a bit of short-covering occur given the falls have been so dramatic already. Traders on the short side of this trade are no doubt looking for an event to take profits, and tonight's announcement could provide that trigger.

If only there were an Organisation of the Iron Ore Exporting Countries!!! Iron ore really needs a cartel to set prices. As we've pointed out recently, none of the big producers can afford to take their foot off the gas, with regard to production and supply, without the cooperation of others, and in a normal world where collusion and price fixing is illegal, this is not possible. So unfortunately this damn iron ore price is still holding those hostage who are on the wrong side of this falling commodity price phenomenon. If you import commodities, manufacture and then export, falling iron ore prices are great. But along with Brazil, Australia is suffering at the hands of a raw materials export economy and we produce and export very little in terms of finished products. As a nation Australia is on the wrong side of this trade and we're just going to have to wait for something to give. Iron ore fell again last night to US$68 per tonne.

Today's second chart shows the S&P 500 implied volatility index (VIX). Let me first say that I show this chart tentatively; VIX (although it is meant to be 'implied' and therefore forward-looking) really doesn't tell you the information you need to know, which is WHEN volatility will rise; rather, it simply tells you what has happened and what the current mood is. So the current mood reflects complacency. At a level of 12, VIX is historically occupying its lower range and you can see this by the small moves in equity markets that we're seeing. In addition to this, the macro economy seems to be taking a breather after a heavy workout recently: Japanese monetary policy is on hold until the December elections; US monetary policy is on hold until energy prices rise and allow inflation to give the Fed an excuse to raise rates (don't hold your breath); and Europe has already given the market just about all it has got in terms of accommodative monetary policy expectations - so markets are having a bit of a rest at present.

Need more evidence of this breather? Look at the third chart - the US dollar index. After trending so hard up until November and creating havoc (ok that's dramatic, but I've just had my first coffee in three days) in commodity and FX markets, the US dollar strengthening theme is definitely on hold while FX traders try and figure out what the heck the US Federal Reserve is thinking vis-a-vis 2015 monetary policy and the potential for a rate rise.

Today’s charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

Base metals mixed overnight: aluminium +0.63%; copper -0.22%; nickel -0.72%; zinc +0.32%, iron ore -0.9% to US$68.00 per tonne

Overnight

  • Dow up 17.72 points/0.10%
  • S&P 500 up 3.91 points/0.04%
  • NASDAQ up 24.55 points/0.52%
  • German DAX up 54.35 points/0.55%
  • WTI and Brent crude lower, US$73.51 and US$77.62 
  • Gold and silver slightly lower, US$1,197.90 & US$16.56
AU Market Preview
  • AUDUSD steady at US$0.8545
  • SPI 200 futures 1 point lower
  • German employment report out at 7:55pm, German CPI out at 12am, OPEC announcement at 2am, all Sydney time.


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