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Market Update: Oil Prices Rally

falling oil prices
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Market Levels

• US: Dow Futures: 17227.00 (-0.32%), S&P 500 Futures: 1983.75 (-0.26%), NASDAQ Futures: 4072.85 (-0.41%)
• Europe: CAC: 4326.27 (0.06%), DAX: 10085.26 (-0.08%), FTSE: 6501.26 (0.05%).
• Metals: Gold: 1265.80 (0.08%), Silver: 17.16 (0.34%), Copper: 2.57 (0.53%)
• Energy: Crude Oil: 46.73 (1.04%), Natural Gas: 3.08 (-2.25%)
• Commodities: Corn: 03.81 (0.46%), Soya Bean: 09.90 (-0.08%), Wheat: 05.36 (0.61%)
• Currency: EUR/USD: 1.1576 (-0.38%), GBP/USD: 1.5180 (0.02%), USD/JPY: 116.6830 (0.32%)
• 10-year US Treasury: 1.7456% (-0.028), German 10-Year Yield: 0.457% (-0.019), Japanese 10-Year Yield: 0.242% (0.001)

Financial and Economic News Update

Global equity markets mostly lower: Stock markets around the globe are trading lower after the Swiss National Bank withdrew a 3-year-old cap on the Swiss franc’s value against the euro. Wall Street also looks set for a lower open on Friday as investors brace for another day of steep volatility. On the economic front, the U.S. Consumer Price Index dropped 0.4 percent last month, in line with analysts’ estimates. In stock news, Goldman Sachs Group Inc (NYSE:GS) fell in early morning trade after the investment bank reported a 7 percent decline in fourth quarter profit.

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Oil prices rally: Oil prices jumped on Friday after the International Energy Agency forecast an end to current market downtrend. The energy watchdog said in its monthly report that due to lower prices, some producers have already begun to cut output, which should likely stimulate demand. Analysts expect Brent to consolidate in the short-term due to the presence of strong technical support in the $46 region.

Gold set for best weekly return in close to a year: Gold is trading near its four month high, and is poised for the biggest weekly jump in ten months, as investors seek safety amidst the heightened global market volatility. The breach of some key technical resistance levels also pushed prices higher. As further evidence of investors channeling money into the safe-haven metal, SPDR Gold Trust, the biggest gold-backed exchange-traded fund in the world, saw its holdings rise 1.30 percent to 717.15 tonnes on Thursday.

Bond Market News

Bonds extend rally following unexpected scrapping of Swiss currency cap: Global bonds extended their record rally as a Swiss National Bank (SNB) decision to dump its currency cap, and make its benchmark rate even more negative, spurred demand for the asset class. Swiss bonds rose on Friday, forcing the 10-year bond yield into negative territory for the first time ever. Treasuries are also heading for a third weekly gain, while most euro-area government bonds also rose following the announcement.

U.S. muni bond funds witness drop in inflows: U.S. municipal bond funds recorded $688.5 million in net inflows in the week ended January 14, according to data released by Lipper. This was about half the $1.3 billion in inflows reported the week before, which incidentally were the largest net inflows since January of 2013. A decline in yields has brought issuers back to the market and driven refunding activity over the last few months.

Russia may have to impose currency restrictions to curb outflows: The Russian government might be forced to resort to currency restrictions if the outflow pace doesn’t moderate in 2015, according to a survey of economists, conducted by Bloomberg News. The steady flight of capital is bleeding an economy that is already facing trade sanctions over its role in Ukraine. On top of that, the steep decline in oil prices have blunted efforts to reverse the currency crisis, driving up borrowing costs.

China’s interest-rate swaps report biggest decline since November: Chinese one-year interest-rate swaps saw their biggest weekly drop since November after the country’s central bank intervened to stabilize the faltering growth. The cost of one-year swaps fell 13 basis points to 3.26 percent this week. The People’s Bank of China has sanctioned 50 billion Yuan ($8.1 billion) of credit support for micro businesses with a view to lower the financing costs.

Towergate creditors planning takeover with debt swap: Europe’s largest insurance broker Towergate Finance Plc’s senior secured creditors have offered to cancel 715 million pounds ($1 billion) of debt, and proposed writing off the accrued interest, in exchange for control of the company. Fitch Ratings last month downgraded the company to two steps above default due to the worsening liquidity scenario.

Investors flee Asia’s junk bond market: Activity in Asia’s junk bond market has come to a grounding halt amid growing concerns over the health of the Chinese economy. The market was further stymied after Chinese developer Kaisa Group Holdings missed a coupon payment for its offshore debt last week. According to data from Dealogic, just one junk bond worth $200 million has been sold in Asia in the first two weeks of the year, compared with $2.9 billion in the same period last year.

Economic Calendar for Friday, January 16, 2015:

08:30 A.M. ET: Consumer Price Index (YoY) (December)
08:50 A.M. ET: Minneapolis Fed President Kocherlakota speaks.
09:15 A.M. ET: Industrial Production (MoM) (December)
09:15 A.M. ET: Capacity Utilization (December)
09:55 A.M. ET: Reuters/Michigan Consumer Sentiment Index (January)
11:00 A.M. ET: San Francisco Fed President John Williams speaks.
01:10 P.M. ET: St. Louis Fed President James Bullard speaks.
04:00 P.M. ET: Net Long-Term TIC Flows (November)

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David Goldstein

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