Political drivers take a back seat this am

Fundamentals stage a come back

For what feels like the first time in a long time, fundamentals get a look in today after the overriding dominance of political markets drivers. Today’s economic calendar is brimming with potentially market moving releases, with a key highlight being the Inflation print for October and the quarterly inflation report. The expectation is a print of 0.3% month on month which will take the yearly reading to 1.1%.

A greater than expected increase in CPI will push back market expectations of a rate cut buy the BoE until well into 2017, which will provide some support for sterling which has rebounded in recent sessions. However, we expect the pound to struggle to push much higher against the recently almighty dollar, with 1.25 proving to be a tough bar to cross. Dollar weakness will be limited as the probability of a Fed rate hike continues to climb higher, with the markets now pricing in an 85% probability of a rate hike in December, with some pointing towards a hike of 0.5%, although we expect the hike to more a more conservative 0.25%.

Trump bond sell off flattens

The turmoil in the bond market appears to be pausing for breath, which is quite typical after the moves we have seen. The global bond market has sold off at an extraordinary rate since Trump won the presidential race 6 days ago and is currently on track for its worst monthly decline since 2003. Debt prices have fallen sharply as investors contemplate a world of higher inflation, increasing interest rate and political uncertainty, however this sell off is now showing signs of slowing. It almost seems ironic that Yellen & co. have been trying to steepen the yield curve for years and yet Trump achieved it in a few days. The challenge is that if this can happen in conjunction with a strengthening economy, if achieved then it could be good news. However, apart from campaign rhetoric we still know very little about Trumps actual plans.

Will they cut or won’t they? A well-trodden path for oil traders

Oil is once again returning to the spot light as we draw closer to the OPEC meeting in around two week. Oil has picked up from an 8 week low, but is struggling to make any real ground as talk of an oil production cut picks up once again. Yet the oil market remains pessimistic, it doesn’t think this deal to cut production will go through. At the meeting the OPEC members will try to reach some consensus but when it comes to actually getting the deal done, the outlook is depressing. We have ben up this road too many times for the oil market to believe the chat.

Is $60 the barrel a realistic target? We would certainly need to see something more substantial than the current talk to get oil anywhere near to back to $60. Supply and demand right now is more or less balanced, however there is a huge amount of stock around the world which would need to be drained; cuts to production would send out the right message and that would lift the price of oil quickly. As we head towards the OPEC meeting we expect volatility in the oil market to increase and any news flow surrounding the cut will be increasingly under the microscope.