Daily Outlook

Bank of England chose to keep its Monetary policy unchanged yesterday, in line with market expectations. The BOE kept rates at 0.5% and maintained the size of its 375 billion reserve for asset purchase program, dispelling worries among investors that members were supportive of a cut. At the same time, the bank published quarterly inflation report, lowering GDP forecast for the next three years and expecting inflation to rise over the period. BOE stressed the possible risk and instability in Brexit scenarios, however no judgment or forecast was made about long-term Brexit impact. Overall, BOE maintained a neutral attitude in the market broadly, with reasons for both bearish and bullish viewpoints. The pound jumped at the start of the session to $1.453 having since retraced to the $1.445 level. The market remains cautious ahead of the British referendum with gains in the GBP/USD pair capped under $1.453.

Significant turbulence returned to the oil market overnight. Price was initially higher following data released by the International Energy Agency (IEA), suggesting that global oil markets are heading towards a long-awaited equilibrium. The report indicated that oil inventories will reduce dramatically in the second half of the year as demand increases and supply from major producers is expected to fall.  WTI crude pushed to a fresh 2016 high hovering at $47/barrel. However, the price was stumbled by concerns over Saudi Arabia’s long-term oil production increase policy aiming to drive other producers out with lower prices and a gradual return of Canadian oil output. WTI crude price was pulled back sharply to $45.6/barrel, before quickly rebounding to its current $46.3/barrel level. With volatility expected to remain, we expect oil to be range bound between $42 to $47 in the short term.