Oil prices yet again have dominated the overall market direction

Good morning!

Oil prices yet again have dominated the overall market direction over the last 24 hours as a slight rebound in major prices has seen equity markets recover losses incurred earlier in the week. However we are going to need to see much more of a recovery if prices are going to continue to recover as yesterday only saw a brief rest bite and a potential dead cat bounce on both WTI and Brent crude oil. However there has been talk over the last 24 hours that $40 could be the absolute price floor for oil as all oil producers continue to lose money even with the price above $50 a barrel. However those eyeing a price floor at $40 are also concerned that any recovery from this level may not happen until the second half of the year.

So with oil prices rebounding slightly and lower than expected Eurozone CPI hinting at a move to introduce QE at next weeks ECB meeting, equity markets were able to post some nice gains. However last nights Fed meeting minutes saw Janet Yellen warn yet again of global growth fears hitting all economies. Of course we know the Fed are well on track and the US is leading the way in terms of economic recovery but the global growth issue is something that all economies must be worried about. She also hinted that interest rates in the US could go up before inflation picks up. Of course inflation in the US is nowhere near as low as in the Eurozone, but yesterday showed that Janet Yellen is willing to stick to her plan without waiting for the oil price to drag the inflation level higher.

Later today we will get the BoE rate decision and of course the expectations for today’s meeting are no change across the board. In the UK we are almost sitting in a bit of a sweet spot in terms of the economy where currently things are both positive for the electorate and government/central bank. With growth figures, unemployment and average earnings figures moving in the right direction the government is happy with the current economic position. The one fear is of course the lower inflation figure, a figure which is insuring that while average earnings slowly go up prices remain static if not lower. It almost shows that at the moment there is no real need to push ahead with a change in monetary policy and we may not see a rate hike now in the UK until 2016. It also shows that the fear of deflation at the moment for the UK is not a totally bad thing after all, especially when the current government will be asking the electorate to go to the poll in the next 5 months.

The last two days of the week are obviously busy ones with the BoE following on from Eurozone CPI and leading into CPI from China overnight and then of course the all-important US jobs report and non farm payroll number tomorrow afternoon. So despite a lot of data already being release so far this week and the dominating oil price causing yet more big swings in markets, the moves are certainly not over for the week just yet, as the first full week of the new year continues to keep everyone on their toes.

Ahead of the open we expect to see the FTSE 100 open 72 points higher with the German DAX higher by 120 points.