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Brent Fell Back Below US$50/bbl on Weak Sentiment and Rise in US Stockpile Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Wed Jun 15 16 01:08 ET

Brexit concerns continue to take the centre stage and dampen market sentiment. GBPUSD fell more than -1% as more polls revealed that the "leave" camp is leading the "remain". The pound also softened against the euro for 3 days in a row, accumulating loss of about -1.5%. European equities got hammered with UK's FTSE 100 index plunging -2.01% and the Stoxx600 index declined to a 4-month low of 320.53, down -1.9%. Wall Street also fell but the losses were contained by firm retail sales. The DJIA and S&P 500 indices were down -0.33% and -0.18%, respectively, at close. Shares in Asia recovered front previous day's loss, however. Energy prices weakened for a 4th consecutive day with the front-month Brent crude contract falling back below US$50/bbl, settling at 49.83 and down -1.03%. The WTI contract dropped -0.8% and closed at 48.49. Precious metals retreated with the exception of gold. Thanks to safe haven demand, the benchmark Comex gold contract extended gains for a 5th straight day, closing at 1285.6 and +0.09%.

Weakness in energy prices was also driven by the increase in US inventory. The industry-sponsored API estimated that crude inventory rose +1.5 mmb in the week ended June 9. For fuels, gasoline stockpile jumped +2.25 mmb while distillate soared +3.73 mmb. The DOE/EIA report due today is expected to show a -3.23 mmb decline in crude inventory. Gaosline and distillate stockpiles probably gained +1.01 mmb nad +1.75 mmb respectively.

More polls unveiled that Britons might prefer leaving the EU to staying. Besides ICM's latest survey showing as much as a 6-point lead by the "leave" camp, a poll by YouGov suggested the "leave" camp (46%) is leading the "remain" camp (39%) by +7 points. Moreover, TNS' poll showed a +7 point lead by the "leave" camp (47%). The poll of polls compiled by Financial Times and whatukthinks.org suggested that the "leave" camp is leading the "remain" camp by +3 and +4 points, respectively. These are the widest leads registered by the "leave" camp since September 2015. Accelerated concerns over Brexit have in recent weeks reflected in financial markets. We expect the BOE to again address the issue at the upcoming meeting on Thursday. Policymakers would most likely leave the monetary policy unchanged. Low inflation remains an issue. Headline CPI steadied at +1.3% y/y in May, weaker than consensus of +0.4%, while core CPI stayed at +1.2% y/y, compared with consensus of +1.3%.

The June FOMC meeting has been overshadowed by the Brexit referendum. Indeed, the market has turned since 2 weeks ago from factoring in a high chance of rate hike to no change in monetary policy in June/July. On the dataflow, US retail sales rose +0.5% m/m in May, better than consensus of +0.3% but moderated from +1.3% in April. Excluding auto, retail sales gained +0.4%, in line with expectations but worse than April's +0.8%.

Besides the release of FOMC meeting statement, US would release its producer price data. Moreover, the Empire State manufacturing index for June probably shows an improvement to -4.95 from -9.02 a month ago. In the UK, jobless claims probably rose +0.1K in May, after falling -2.4K in the prior month. The ILO unemployment rate for the 3 months through April probably stayed unchanged at 5.1% while the growth in average weekly earnings slowed to +1.7%, from +2% in March.


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