Morning Market Overview

The asset markets were driven with another wave of uncertainty Tuesday resulting in a strong sell-off in global equities spreading into the oil pits. Oil was strongly lower on the day and ahead of the weekly oil inventory cycle which got under way with the API data release on Tuesday afternoon followed by the EIA report today.

A decline in the US dollar Index (versus 7 major currencies) was not enough to offset the strong negative sentiment in the oil complex driven from falling equity values. The news snippets circulating over the media airwaves were mostly all about inflation risk, higher bond yields, high oil prices causing inflation along with some negative comments coming from a few large companies as part of their earnings reports.

That said the clear majority of earning reports were very positive. We would conclude Tuesday as a sentiment driven day as the equity trading community chose to shed risk as end of the month book squaring gets underway. Ahead of the API inventory report all signs pointed toward bullish short and medium-term oil fundamentals. The global overhang is just about gone as most oil centers are reporting inventories either very near or even below the five- year average level for this time of year.

This coupled with an elevated geopolitical risk still evolving in many oil corridors around the world still suggest that oil remains more in a buy the dip mode rather than sell the rallies. On the financial front global equity markets were mixed on Tuesday. The EMI Index ended the trading day marginally higher but with a significant decline in US equities. The EMI Index increased 0.01 percent on the day with the year to date gain at 3.4 percent.

Three of the ten bourses in the Index remain in positive territory for 2018 with China is now holding the worst performing spot in the Index with Brazil in the top spot with an 11.8 percent gain for the year. The marginal overall increase in the Index was more than offset by the significant decline in US equities and thus a negative price driver for the oil complex.