Rain in Spain weighs on risk sentiment and oil prices

OilOil prices have plunged by almost USD 6/barrel to Brent USD 102.94/barrel and WTI USD 88.32/barrel since Thursday afternoon’s high as Euro-zone fears once again weigh on risk appetite, just like grey and rainy clouds cover the bright and warm summer sun in Northern Europe. The resurgence of fear triggered a sell-off of riskier assets such as oil as investors took flight into safe-haven US Treasuries.

The return of Euro-zone uncertainty came after news that two Spanish regional governments, Valencia (Friday) and Murcia (Sunday), have sent bailout requests to the central government in Madrid and pushed Spain’s bond yields to a new euro-era high (10Y at 7.52%) and the euro to a 2-year low against the US dollar at 1.2103.

Market fears were driven even higher Friday after the troika (the IMF, the ECB and the European Commission) ramped up the pressure on Greece ahead of a visit by international lenders this week by refusing to accept Greek government debt in exchange for central bank funds for the time being. The statement has renewed doubts that Greece can fulfil its obligations to the creditors and added to the risk that new funds will not be made available if the commitments are not met.


 Source: Reuters Ecowin

Worries are also increasing about the economic growth potential for China, the world’s second-largest oil consumer. According to Bloomberg a Chinese central bank adviser predicted that China’s GDP growth may fall to 7.4% in Q3 as the Euro-zone crisis has dampened exports and a crackdown on property speculation has curbed domestic demand. We still expect China’s aggressive stimulus measures to come into effect over the coming months and that the recovery will occur gradually this autumn. Early tomorrow morning we will get further indications of recent developments in the Chinese economy as the HSBC flash manufacturing PMI for July will be released.


Political turbulence, embargo/sanctions against Iran and planned maintenance continue to support prices.


The escalating conflict in Syria has raised the prospect of a collapse of the Syrian government and concerns over a further eruption of violence. Around 170k b/d of oil flows remain shut in due to the political unrest and sanctions, and this oil is not likely to return to the market for a while. The intensifying conflict in Syria coincides with a surge of violence in neighbouring Iraq.

Violence has escalated in Iraq in the last few days following a series of attacks by unidentified gunmen targeting a military base and detonating car bombs in cities such as Baghdad and Kirkuk. Increasing political stability may put new oil production and infrastructure projects at risk. In addition, political progress remains stalled over the Kurdish-Baghdad oil disputes. The Kurdistan Regional Government (KRG) continues to push for independent oil exports and this has strained Turkey’s relationship with Baghdad as Turkey continues to import Kurdish oil.

The EU oil embargo against Iranian crude imports and tougher sanctions by the US continue to work on the countries’ oil supply. We expect that Iranian oil exports will fall by 1-1.3m b/d in July. Nevertheless, Iran is ramping up its shipments to China. According to Bloomberg Iranian shipments increased by 17%m/m in June to around 635k b/d. The average import from Iran in 2011 was 557k b/d.

European oil supply is still affected by the Norwegian oil strike that shut in around 240k b/d of North Sea oil production in the period from 24 June to 10 July. North Sea exports are expected to drop to the lowest levels in 26 months in August as planned maintenance will cut export volumes by around 27k b/d to 1.91m b/d (Bloomberg).

Political unrest will continue to support oil prices in Q3 with mounting fears of what will happen in Iran and Syria, but the all-important this week will be the rain in Spain and risk of rain in other troubled European countries.

Key indicators to look out for this week will be growth signals from China, with the HSBC PMI (Tuesday morning), the German Ifo index (Wednesday) and the US Q2 GDP data (Friday).




Latest research

Swedish Morning Briefing - Wednesday 23 April

• Kerry warns Russia to tone down its rhetoric • Chinese PMI looks set to rise

China: Not yet spring for the PMI

China’s flash PMI rose unsurprisingly to 48.3 in April. On the backdrop of favourable policies to small companies, the improvement is likely to continue in the coming months, but PMI is likely to stay below 50 because of excess capacity and debt overload.

FI Eye-Opener: China not rebounding like it used to

Bond markets with a rather calm day after Easter. Bonds with more potential in the near term. Intra-Euro-zone spread narrowing not run its course. Chinese PMI still depressed. Downside risks to today’s PMIs. Portuguese and US auctions ahead.

Euro Rates Update

The latest Euro Rates Update is now available

Preliminary Prepayments

Preliminary Prepayments

RUB: mixture of capital outflow, Central Bank’s policy and geopolitics

RUB has been under pressure recently as tsunami of capital outflow, caused by the threat of sanctions against Russia, washed away optimists and buyers of RUB-denominated assets. The pace of capital outflow increased in Q1 2014, reaching unimaginable $51 bn. (compared with $62.7 bn. in 2013). The volatility stays high on the Russian markets and the rouble remains focused on geopolitics.

Sweden: March Labour Force Survey better than it seems

Unemployment remained unchanged at 8.1% in March (seasonally adjusted). This was above forecasts at 8.0%. However, employment rose more than forecast and was up 0.3% m/m after an uptick of the same magnitude in February. Thus, the higher than expected unemployment reading in March is (once again) explained by unexpected strong growth in the labour supply, +0.3% m/m.

Swedish Morning Briefing - Tuesday 22 April

• Deal clinched during Geneva meeting • Ingves says deflation not likely

FI Eye-Opener: Portuguese bond auctions back

US Treasuries with a beating ahead of the Easter. Some gains ahead for bonds today. US existing home sales out today – Euro-zone flash PMIs later. A flood of auctions on the agenda already today. Portugal to resume its bond auctions. Fresh cash injection to boost French bonds this week.

Euro Rates Update

The latest Euro Rates Update is now available

Swedish Morning Briefing - Thursday 17 April

• Separatists in Donetsk plan for a local referendum • A summit in Geneva to discuss the crisis in Ukraine

FI Eye-Opener: Easter bunnies to boost bonds today

Yields edged higher yesterday – long positions with potential today. Equities rebound, but more weakness likely ahead. Euro-zone core inflation back to record-lows. Italy taps retail investors for huge amounts again. Big US banks boosting their lending to companies – Euro-zone doing much worse. Philly Fed, jobless claims and LTRO repayment announcement. New French 2-year benchmark and US auctions ahead.

US Rates - Market in doubt

• It has been a bumpy ride for US rates in 2014. A two month rally started the year and recently the Fed has added substantial volatility with their somewhat wobbly way of commenting on future policy. • Further, the last NFP on April 4th was quite a disappointment. • In this note we look into the market perception (through futures and options) of all this, and in particular find indications towards a loss of faith (on rising rates) on behalf of the option market.

Swedish Morning Briefing - Wednesday 16 April

• Putin urges UN to condemn Ukraine’s intervention • Chinese growth at weakest level for six quarters

FI Eye-Opener: No support can survive constant pounding

German 10-year yield finally broke important support – mood remains bullish. A correction higher in yields still looks likely today. US equities recover after early losses. Q1 effect hits Chinese GDP numbers again. Ukraine’s military starting to use force US core inflation bottomed out? Euro-zone inflation and US housing market data ahead – Germany to sell 10-year bonds.

China: The impossible duality

China’s Q1 GDP growth of 7.4% was marginally higher than market consensus. It was caused by a combination of cyclical slowdown and structural shift away from the traditional growth drivers. Beijing is likely to continue the fine-tuning policies and stays away from large-scaled stimulus.

Swedish Morning Briefing - Tuesday 15 April

• Obama warns Putin • Ukraine raises policy rate

Competitiveness of the Nordics

Financial crisis and subsequent Euro crisis have cast doubts on the future prosperity of the Nordic countries. This report takes a closer look at the competitive position of the Nordics over past ten years and aims at answering how worried these countriesshould be.

FI Eye-Opener: Still going lower

Bond yields rebound, but bonds with more performance potential left. Intra-Euro-zone spreads narrow. Equities rise – more downside potential in the near term. US retail sales beat expectations. Eyes on US CPI and Yellen’s speech.

EM FX: Ukraine takes the headlines again

The Ukrainian President's deadline for rebels occupying state buildings in Eastern Ukraine to lay down their weapons have passed. Markets are awaiting news. EM FX is slightly weaker this morning, especially the RUB, the PLN and the TRY, but it seems that markets are becoming more resilient to headline news from Ukraine.