Oil warning light?
With Wall Street closed for Presidents Day, European stocks nevertheless held on to early gains amid expectations of a Greek deal and China’s 50 bp cut to the bank reserve ratio requirement. The FTSE gained 40.18 (0.68%) to close at 5,945.25; while in Europe the DAX and CAC gained 1.46% and 0.96% respectively. Australia also reacted well to the cut in the reserve ratio and had a stronger day with the ASX200 rallying 1.4% to 4256.
Miners led the way in both Australia and Europe overnight as the market now begins to factor in a “better than expected landing” for China as its central bank freed up an estimated $60bn cash of lending in its latest move.
We recently suggested that the greater threat to the global economy is not Greece, but the oil price due to the geopolitical threat from Iran. The last major price move in 2008 saw Brent crude spike to US$145 then fall back to $60 within six months. This time Brent has been well above $100 for over a year, with several signs ominously suggesting higher prices yet.