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An oil price rally not to be trusted

Published Thursday, February 25th, 2016

A shortage of economic reports ensured that market sentiment remained at the mercy of the latest swings in the oil markets with Brexit uncertainty also contributing to the subdued mood. An early decline in oil prices sowed the seeds for European equity gauges to end the session sharply lower as sterling fell to a fresh seven-year low of $1.3876. The start of what will be a turbulent period for the UK in the run up to the EU referendum saw Christine Lagarde weigh into the debate after she urged the UK to remain in the European Union with both parties facing significant downside risks from a Brexit.

Though there was not much on the economic agenda, the little that was on offer did not provide much cheer. Along with a downbeat survey of French consumer morale and tumbling Italian industrial production, investors were given a stark reminder of the increasingly shaky US economic outlook. This came courtesy of a flash Markit US service sector PMI which fell this month to 49.8 from January’s reading of 53.2 in what was the first dip into contraction territory since October 2013. Further angst was provided by housing data which revealed that new home sales sank by 9.2% in January – albeit from a 10-month high in December – and will stoke existing fears that the US economic recovery is stalling. Such concerns were however brushed-off on Wall Street where shares took their cues from a late rally in oil prices to end the session with modest gains. There was such no good fortune for Chinese mainland indices which have slumped more than 6% this morning as global growth jitters returned to the fore on the eve of the gathering of G20 finance ministers and central bankers in Shanghai.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.