Published July 22, 2016
- Overnight market action was tinged with a risk off tone as equities in Asia fell and the European session was blighted with poor UK PMI data which hints a post Brexit recession is in the cards before the year is out
- British Purchasing Managers data showed manufacturing and services activity plunged in July, a fall consistent with a broader 0.4 percent economic contraction in the third quarter, raising the probability of recession
- In Canada, the picture was little more up beat with inflation and retail sales data both beating expectations this morning
- CPI data for June rose 0.2% on a monthly basis and 2.1% on an annualized core basis once energy and food prices were stripped out
- Retail Sales rose 0.2% in May and 0.9% once auto sales were stripped out
- Both pieces of data point to the Bank of Canada staying on the sidelines after cutting rates twice in the last 12 months to lessen the blow from the oil price shock
- USDCAD tested key resistance above 1.3100 prior to the release as low oil prices continue to weigh on the Loonie
- Supply fundamentals continue to pressure prices and in particular US prices as the spread between Brent and WTI has increased to its widest since April at US$ 1.50/barrel
- WTI continues to test key levels of technical price support at $44.60 and demand for crude is being hurt by a growing glut of refined products such as gasoline and diesel
- Gasoline inventories in the Amsterdam-Rotterdam-Antwerp hub have hit record highs and there are reports that inventories in Asia are also brimming, meaning that refinery demand for crude should continue to wane as autumn maintenance season approaches
Chart 1. USDCAD sideways consolidation continues, bias to the upside.
Chart 2. WTI prices continue to look set for a break lower.