Morning Commentary: Oil prices spike, but EM remains weak; Spain turmoil hurts sentiment

By Christine Van Dusen

Atlanta, Jan. 4 – Tensions between Saudi Arabia and Iran led to a spike in oil prices on Monday, but emerging markets assets still didn't get a boost during the early session.

“Risk markets remain weak on the highlighted political risk and weak data from China,” a London-based trader said.

Also hurting sentiment, he said, was the political picture in Spain, where Catalonia was expected to set new elections.

“We also have some worry from Spain brewing in the background, as they seem less likely to form a government,” the trader said.

Spreads widened in response to these big-picture problems.

“But the rally in rates will help cash prices stay unchanged,” he said.

The bond curve from Turkey stayed flat on Monday, he said, a situation that was “justified by the risk-off sentiment in general, and possible supply. Inflation numbers are out and higher than expected. With political tensions in the Middle East we could see some spillover in Turkey.”

In other trading, Peru opened on Monday on a weaker note, a New York-based trader said.

“Cash prices are mostly unchanged on spread widening,” he said, adding the market is “starting the year on a weak note.”

Many investors are pleased to be leaving a tumultuous 2015 behind but are unsure about how well they’ll fare in 2016, another trader said.

The new year “doesn't look like a straightforward one either,” he said. “But have we had most of the macro adjustments already? Will a pick-up in developed-market economies to support global growth happen? Seems like a big ask.”

No matter what, “volatility will remain high and a more proactive investment stance will probably perform better in this environment,” he said.

© 2015 Prospect News.
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