BOJ Fired Another Bazooka, Oil Drops Again

BOJ Fired Another Bazooka, Oil Drops Again

An important week commences with mines of economic numbers and important central bank meetings. The Bank of Japan kept the interest rates unchanged but tweaked some policy measures. The BOJ declared unlimited buying of government bonds and removed price momentum from its forward guidance. However, the dollar-Yen pair failed to gather any significant momentum on the back of the fresh bazooka from the BOJ.

The European Central Bank and the Federal Reserve Bank will also publicize their monetary policy measures this week. There is no doubt that both banks have been busy battling a war against the impact of coronavirus on their economies.

Overall, the sentiment was positive in Asian markets due to the fresh bazooka from the BOJ and the fact that authorities around the globe have started to ease off some of the restrictions around coronavirus.

European and US futures are building up gains on the back of this confidence. Although, speculators question if the stocks are overvalued, given the recent rally that we have seen in the equity markets since the COVID-19 low. This is the time when investors need to be immensely cautious because the economic data is still falling off a cliff and we are still far from reaching the bottom.

Back in the commodity space, Saudi Arabia, the chief producer of oil among the OPEC cartel, initiated the production cut a little earlier than anticipated in order to send the message to the market that the oil giant is ready for action. The kingdom has reduced its output from 12 million barrels a day and it will hit the agreed limit of 8.5 million b/d before May.

Despite this, oil trading prices are still down today. It is the WTI crude oil’s June contract that is getting hit the hardest. At one particular point, it was down over 10%. The fear of WTI June contact being pushed into negative territory is still real and traders are mindful of this fact.

Brent prices are down over 2%, but the sell-off isn’t that steep at this end, this is because there is a clear message from the OPEC+ cartel, it is committed to reduce the supply cut as per their agreement. Moreover, it is likely to get another production cut from OPEC+ if the Brent price starts to crash again. But, to get an organic production cut from the US is almost impossible hence the WTI prices remain more vulnerable.