Mild Risk Aversion Seen in Early Trade

US indices are seen pulling a little further away from record high levels on Wednesday, as we appear to see a slight shift in risk appetite although there are no signs at this stage of a broader trend developing.

Gold and Yen Gain in Slightly Risk Averse Start to Trading on Wednesday

We’re not in a particularly risk averse environment right now, by any extent, with numerous stock indices trading around record highs, but we do appear to be seeing some today. Gold is making small gains on the back of this today, having suffered over the last couple of weeks since falling just short of $1,300 for the second time in the last couple of months. Another move towards $1,300 again would be a very good sign for the bulls, with the dip having once again been bought at higher levels.

DAX Loses Ground, German Bonds Lower

Oil Stabilises But Still Looks Vulnerable to Further Downside

Oil has stabilised on Wednesday but may remain under pressure in the coming days, having fallen sharply on Tuesday despite there being no clear fundamental trigger for the move. Brent and WTI did find some support around $45.50 and $43, respectively, levels that have prompted similar reactions over the course of the last year. With bearish sentiment only appearing to grow though, you have to wonder whether these levels can hold on this occasion or whether $40 could be hit or even breached, in both cases.

Oil Spill Sends Stocks and Yields Lower, Dollar Steady

For the latter to happen, we may need to see clear evidence that the production cut is either insufficient in clearing the excessive stocks or that compliance with the deal is in doubt. Inventory data from EIA will offer some insight into the success of the cut, with another small drawdown expected. API reported a similar number on Tuesday, claiming inventories fell by 2.72 million last week and while this has been a relatively good guide in the past, we did see last week that it isn’t always reliable.

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Sterling Finds Temporary Support After Tuesday’s Sell-Off

Sterling was trading a little lower early on in Wednesday’s session, adding to losses made on the back of dovish comments from Bank of England Governor Mark Carney on Tuesday. The pound found some support around 1.26, a break of which could open up a move back towards April’s lows just above 1.2350.

Larger losses were being seen against the yen, which is seeing some safe haven flows today, along with Gold, although the key test here falls just above 138.50, a break of which could signal further downside ahead.

Comments from BoE policy maker Andy Haldane have since sparked some life into the pound though as he claimed a partial withdrawal of 2016 stimulus would be prudent heading into the second half of the year. The BoE cut interest rates by 25 basis points after the EU referendum and announced an increase to its asset purchase program in a bid to quickly address the fallout from the vote. Haldane is now claiming that, despite favouring keeping rates steady in June, tightening would likely be needed well ahead of current market expectations. Given Carney’s comments yesterday and last week’s vote, it would appear the central bank is just as polarised as the rest of the country right now.

For a look at all of today’s economic events, check out our economic calendar.

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