Crude oil prices surged again as U.S. oil production fell for the seventh week in a row and global central bankers seem a little more upbeat. With the Federal Reserve changing the wording and removing “risks" from their statement and Japan’s central bank holding fire, the demand expectations have changed dramatically from just a few months ago when many thought that global oil demand would grind to a halt.
European equity markets are currently on course to open a little higher but these gains are marginal and at this stage only represent a slight paring of Monday’s losses. Weakness in commodity markets – usually associated with the risk-off trade – weighed on indices on Monday and again during the overnight session in Asia, and could continue to do so throughout trade today (Tuesday, April 26).
We could be in for another rocky week in the markets with particular focus back on the central banks as we get the latest monetary policy decisions from the Federal Reserve and Bank of Japan, the latter of which is expected to announce new stimulus measures.
Investors cut their holdings of stocks to the lowest in at least five years in March, despite a recovery in global equity markets, with euro zone and Japanese assets bearing the brunt as doubts grew about the effectiveness of central bank stimulus.
European shares fell on Tuesday, pulled lower by mirroring declines in Asia after the Bank of Japan painted a bleaker picture of the Japanese economy and helped push the yen higher, and as oil and metals prices dropped.
Crude oil traders are starting to fear the talking Fed. While no one expects the Federal Reserve to raise interest rates, the statement and comments by Janet Yellen could cause a selloff in commodities as fears that a divergent path in interest rates will cause further slowing in the emerging markets. Oil rallied last week on the back of oil demand optimism and OPEC restraint.
European shares followed Asian stocks higher on Monday, adding to gains chalked up after last week's stimulus package from the European Central Bank, while oil prices fell as Iran dashed prospects of a quick deal to freeze output.