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A New Year rush to safe havens

Published Wednesday, January 7th, 2015

Another $2 bbl fall in oil prices brought pain not just to oil producers yesterday but also to equity markets. For the moment the long term benefits from low oil prices are taking a back seat to worries about what they are signalling about global growth and deflation. The eurozone composite price index may well come in negative when it is released today.

While oil producers worry about how low oil prices can fall, bond investors worry about how low bond prices can fall. In a strong sign of the anxiety that is just below the surface, safe haven bonds took a significant price dip yesterday. The 10-year Treasury yield fell below 2% and the German Bund below 0.45%. Safe havens are in high demand, and Europe is looking more like Japan every day.

There was no relief for oil prices. Brent managed to avoid breaking below $50 bbl, touching a low of 50.52 before settling at 51.10 (-201). WTI traded down to 47.55 and settled at 47.93 (-211). Heating oil lost 2.3cts/gal (172.62) and RBOB lost 2.7cts/gal (135.43). If Brent closes below 50.75 the next technical objective is 44.09 which is the 50% correction point of the 1998-2006 uptrend.

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Posted by David Hufton