Risk aversion sees Brent hit 5 and a half year low

Monday, January 05, 2015

Risk assets across the board were hit by the wave of risk aversion sweeping across markets today with front month Brent crude oil futures trading at a fresh low, below $55/bbl for the first time since May 2009 as increasing output from Russia and Iraq added to ample global supplies. Prices for the global benchmark have closed lower for six straight sessions and are on track to extend declines for a seventh day as fundamental drivers continue to point towards a negative outlook. At the time of writing Brent front month futures were trading around $54/bbl having reached a low of $53.75/bbl on the day.

European equity markets traded under renewed pressure on Monday as fresh concerns regarding Greece and the euro saw heightened risk aversion among investors at the start of what will be the first full week of 2015. Benchmark indices across the region traded in negative territory throughout the day as rumours that Germany would allow Greece to quit the single currency bloc as well as reports that the ECB were ready to embark on quantitative easing saw investors pullback slightly.

The tentative outlook saw the euro dip to a nine year low against the dollar, trading towards 1.1864 against the dollar at one stage as increasing volatility and political uncertainty continues to put pressure on the ECB to act sooner rather than later. The euro has lost significant ground against the dollar, posting losses of 11.98% against the greenback last year and having already weakened a further 1.61% year-to-date we could see further downside moves unless intervention from central bankers proves successful.

However, a recent Financial Times survey highlighted concerns over the ECB’s effectiveness, with most of the 32 eurozone economists expecting ECB to launch its QE programme this year with the purchase of government bonds. Slowing manufacturing and industrial output have increased the threat of a derailing eurozone recovery while a continued drop in inflation puts additional pressure on the ECB to act. Economists remain sceptical however, with the majority polled by the FT expecting the outlook for growth and inflation to remain subdued even with the support of bond buying by the central bank. Economic data compounded worries of a stagnating eurozone as German inflation slowed to its weakest level since 2009, prompting further support among investors for timely assistance from the central bank.   

Brent futures trade briefly below $54/bbl

CO1 Comdty Generic 1St CO Fut 2015 01 05 15 19 00

VIX rallies on growth fears

VIX Index Chicago Board Options 2015 01 05 15 18 45

EUR trades at a nine year low against the dollar

EUR Curncy Euro Spot 2015 01 05 15 19 20

Topics: USD, Crude oil, ECB, Brent, EUR, VIX
More from: Kash Kamal