Europe Opens Higher Despite Crude's Crash Continuing

European bourses have started stronger on Wednesday, as the mood in the market appears to be improving despite the price of oil continuing to decline.

Charts (1)

European bourses have started stronger on Wednesday, as the mood in the market appears to be improving despite the price of oil continuing to decline. The FTSE which shed just shy of 3% in the previous session opened 0.8% higher. An additional $484 billion rescue package stateside and a boom in Netflix subscriber numbers are doing their bit to boost sentiment, as is upbeat news on vaccine trials in the UK.


Brent hits 18 year low
Oil is crashing for a second session, hitting levels not seen for two decades, fuelled by anemic demand and the swelling global oil glut.  Overnight Brent dropped by almost 18% hitting $15.98 a level last seen in mid-1999. The fall in Brent comes following a plunge in the price of WTI earlier this week which saw WTI futures trade in negative territory for the first time ever. The pickup in demand as Asia comes out of lock down is slower than expected. This will almost certainly be replicated across the globe.

The steep losses in the oil markets could suggest that the economic hit from coronavirus will be far worse than initially anticipated by investors. Energy stocks unsurprisingly were under pressure in the previous and we can expect them to remain depressed with oil at these levels.




Gold Shines
Gold prices are on the rise as investors seek out their safe haven properties. Gold futures jumped by 1.1% overnight taking the precious metal above the $1700 level.  We are seeing the precious metal restore its inverse relationship with stocks. Gold is starting to shine, which is not that surprising given the ongoing turmoil in the financial markets, interest rates on the floor and amid the huge levels of fiscal and monetary stimulus unleashed to cushion the impact of coronavirus. A move towards $2000 is completely conceivable.

Gold miners are also worth keeping an eye on. With gold prices surging and oil prices falling profit margins at gold miners have the potential to surge. Lower oil prices mean lower input costs.

UK inflation drops to 1.5% yoy
The pound is attempting to claw back some its losses after diving over 1% in the previous session. Fears that Boris Johnson could be adopting a more dovish approach to ending the UK lock down unnerved investors. These fears were then fanned by BoE governor Andrew Bailey warning of easing the lock down too soon. 

On the UK data docket, CPI is showed inflation increased at 1.5% yoy in March, down from 1.7% as petrol prices fell and consumption of non-essential items plunged. Traders have shrugged off the in line data, preferring activity data recently. 


More from Oil

Related Articles

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.