Oil sees short covering rally as Europe moves to background

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All it takes is no speeches or 30 second news snippets coming from Europe and the risk asset markets were able to put together a strong short covering rally that has carried over into this morning's trading so far. The main news out of Europe this morning is the size of the loans made by the ECB to the regions banks on a three year basis. The roughly $650 billion dollars was about twice as much as many had expected and a positive as it should help in keeping credit flowing during the sovereign debt debacle. In addition German bond yields declined today another positive sign. With the holiday period quickly approaching Europe seems to be moving into the background at least on a temporary basis. With the macroeconomic data out of the US continuing to outperform and as long as nothing new emerges out of Europe the current short covering rally could continue. That said we are quickly approaching the low liquidity holiday trading period as more and more trading and investing shops close down for the rest of the year.

The global equity markets recovered most of the losses from earlier in the week and then some as shown in the EMI Global Equity Index table below. The EMI Index is now up 1.1% on the week narrowing the year to date loss to 15.4%. The US Dow is now up by 4.5% for the year and continues to hold the top spot in the Index. Only Hong Kong and China remain in bear market territory. Yesterday (and into this morning so far) is still categorized as a short covering rally and not a change in trend at this point in time. Overall the global equity markets were supportive for oil prices as well as the broader commodity complex.

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