o The USD posted a significant rebound yesterday. But it was not based on its fundamentals. The only economic report was disappointing again. It was rather a correction of last week’s sharp fall in a context marked by a strong rebound of worries about Greece. The EUR/USD pair fell below 1.13 yesterday and further low this morning after ECB’s Coeuré comments.
o Main events: Nothing really new on Greece. Still the same positive messages sent by the Finance Minister about a deal “within” a week, but nothing concrete that can back his stance. No proposal of reforms of the pension system or labour market rules, two of the key requests from Greece’s creditors. The EU Commission is said having submitted a short list of key measures that may pave the way for a deal yesterday evening, but nothing has been confirmed. Negotiations are complicated by the fact that Mr Tsipras faces an increasing opposition to a deal in his own party. In the US, theNAHB housing market index was down in May, as we expected. In these conditions, the 9bp rebound in the 10-year bond yields was very difficult to understand, but it supported the USD.
o On the agenda today: By order of appearance, UK inflation data will be the first key economic report released today. Inflation is expected stable at 0% yoy with therefore no impact on the GBP. The final April euro area inflation data will follow and are expected to be confirmed at 0% as well. More interesting, the May German ZEW survey will open a series of key business surveys in the euro area this week. Given the recent correction in European equity markets, we think both the expectations and the current situation indices should be down. In the US, construction data on the menu again with housing starts and building permits. Both are expected on the rise. This can be the case without pointing to a clear upturn in the sector. Activity has remained at very low level, at less than half its pre-crisis levels.
o EUR/USD: The sharp downward move this morning was due to the announcement made by ECB’s Coeuré that the ECB would increase its bond purchases in May-June compared to July-August for obvious liquidity reasons and also that the deposit rate can in theory be more negative. But Mr Draghi already said they would not lower it, as they think it would boost risks of bubbles. We think this plunge excessive and should be reversed. Otherwise, a weaker ZEW may point to lower euro but the sharp fall of the EUR/USD pair yesterday was not really fundamentally driven and therefore looks fragile. On the upside, the 5-day moving average will be the 1st resistance around 1.1370. On the downside, there is a strong support around 1.1160 corresponding to the 20-day and 100-day moving averages.
Oil: Close to close: down at $ 66.27/bbl for Brent ICE MAY15 (This morning at $ 65.40/bbl)
o Brent prices posted losses yesterday in a very hesitant market amid oversupplied outlook. Main bearish news yesterday were the near-record Saudi exports for March and expectations of an oil prices drop by Goldman Sachs in the longer term. WTI prices received some support from rising demand ahead of the summer driving season.
o Main events: According to official data, Saudi Arabia’s crude exports rose in March to their highest in almost a decade. The Kingdom shipped7.9 Mbd of crude in March (after 7.35 Mbd in February and 7.474 Mbd in January), a highest since November 2005. Oil Minister Ali Al-Naimi has said Saudi Arabia produced some 10.3 Mbd of crude in March, highlighting the strength of global demand (2.4 Mbd). Saudi Arabia burns more crude to generate power for air-conditioning heading into summer and it has also been feeding more crude to domestic refineries as it expands oil product exports.Goldman Sachs has cut its long-term crude oil price forecasts yesterday : the bank cut its 2020 Brent projection to $55 from $70/b, saying that improved US shale efficiency and higher production from OPEC will more than cover future demand. Last week the US investment bank described the recent rally in oil prices was “premature”, adding that a weakening of prices is required for a rebalancing of the market to resume…
o Outlook:Markets are still in a wait-and-see situation, prices are high but outlook are weak : on the demand side, China looks set for its worst year in 25 years and US numbers are worrying while upward potential for supply is huge ahead of OPEC meeting in 15 days and Iranian deadline at the end of June. Some major figures are awaited on Thursday and Friday ahead of the Memorial day weekend but, until then, we see markets quiet with no clear direction. For today, we see prices stable to bearish with a support at $65.35/b.WTI contract for June delivery expires today.
Gas: Close to close: Down at 21.47 EUR /MWh for TTF CAL 16 (This morning at EUR 21.50/MWh)
o Tighter fundamentals pushed European spot prices higher on Monday whereas curve contracts softened on the back of lower oil prices.Gas demand increased significantly across Europe as temperatures dropped compared to Friday : +5% in the UK, +6% in the Netherlands. On the supply side, Norwegian flows were hit by an unplanned outage at the Nyhamna processing plant which dragged exports 14 mm cm/day below Friday’s level. The beginning of the second tranche of seasonal field maintenance and the full shutdown of the Langeled pipeline on Tuesday provided support to day-ahead prices. Despite bullish prompt prices, curve contracts lost value, pressured by warmer temperature forecasts for the coming weeks and a comfortable LNG outlook in the UK.
o NBP ICE June 2015 prices lost 0.46 p/th at the close (-1.08%), to 42.11 p/th. TTF ICE June 2015 prices were also lower at the close: -18 euro cents (-0.86%), to €20.308/MWh. On the far curve, TTF ICE Cal 2016 prices lost 15 euro cents (-0.69%), to €21.465/MWh.
o The UK system is oversupplied today despite the halt in Langeled flows. Indeed, supply flexibility from UKCS production, LNG send outs and storage withdrawals offsets the impact of Norwegian maintenance this morning. UK gas demand is also expected to be 14 mm cm lower than Monday today. Consequently, NBP day-ahead prices could slash Monday’s gains which could weigh on continental spot prices today. However, expectations of higher gas demand tomorrow due to lower temperatures could limit losses on the prompt. The outlook remains slightly bearish for the curve as oil prices should not be supportive.
Coal: Close to close Down at $ 57.75/Ton for API2 CAL 16 (This morning at $ 57.40/Ton)
o Carbon prices inched lower yesterday: carbon market players are hesitant for the time being to go further up and probably took some profit. A technical support level is around €7.4-7.5/ton on the EUA dec15 maturity. Prices could reach these levels in the short term, which is slightly bearish for power prices on the curve as well.
EUA: Close to close: Up at EUR 7.67/Ton for EUA DEC15
Power: Close to close: down at EUR 31.65/MWh for German power CAL 16 (This morning at EUR 31.53/MWh)
o The major point of attention yesterday was Germany amending its carbon tax levy proposal following strong opposition and a strike action on April 25. The proposed new climate levy is a watered-down version which will target 16Mt/year of emission reduction instead of 22Mt/year. The lacking 6Mt/y would be covered by increased support for CHP stations. Germany’s carbon tax could evolve the following way: 1) increase the limit of 3Mt/GW after 41 years of life before climate levy kicks in to 3.8Mt/GW after 37 years. According to us, there are 10GW of lignite capacities which are under this case. This could lower the additional burden in terms of clean coal costs by around €0.5/MWh. 2) Adapt the level of the levy payable for excess emissions dependant on the wholesale power and carbon market price: it should rise and fall according to market conditions. Special rules are also considered for those plants with high transport costs (from mine to the plant).
o On markets, German baseload power prices far on the curve moved lower: Cal20 went down by €0.23/MWh, Cal16 by €0.11/MWh. But this was mainly the consequence so far from a decline in clean coal costs. Indeed, clean base dark spreads in Germany were stable yesterday. In our view, independently from coal and carbon, CDS levels could ease down after yesterday’s proposed revision of the German tax levy (where discussions are ongoing). This is why we would be a bit bearish on the far curve today.