Oil prices have dipped while the dollar strengthened against the Euro yesterday giving some mixed signals to the market. In main, the fall in oil prices can be attributed to the fall in energy shares which did show its impact on the marketplace. In addition, the unexpected increase in inventory with respect to gasoline further dampened enthusiasm for oil and led to the subdued performance that resulted in a 3% fall in price.
1.5 million barrels bring pressure to bear on oil prices
A build to the tune of some 1.5 million barrels is the cause for the oil price dip right now, particularly as it is counter- seasonal as well. Adding to this is the fact that there has been a significant increase in production by the U.S., which further puts pressure on the price points. The dip in oil pricing had a domino effect on the market and pushed down the S&P 500's energy index lower by 1.4%. The S&P 500 mimicked the fall by tracking back on gains achieved earlier.
The dollar strengthens
The dollar has been showing its weakness against the Euro in recent times so the strengthening came as a relief to the market. Yen, which has been enjoying its safe haven status for a while, also balanced out against the dollar as the latter strengthened slightly.
The sterling did not fare very well mainly because of the political movements happening in the country. Britain's prime minister has made an unexpected announcement for snap elections and the currency is reacting to this major event by remaining somewhat subdued. It must be remembered that the sterling was going strong with six month highs until now. The impending French elections are also affecting currency in significant ways and making investors take a more cautious stance than usual.
In terms of first quarter earnings, the U.S. has some good news to share with respect to the first quarter earnings. These have been better than was widely expected and this has added impetus to economic activity. Meanwhile inflation remains slower owing to the continuing doubts about whether or not the current administration will push through with tax cuts that were promised before. The fact remains, that the current economic data has been falling short of expectations over the recent past and this does make it more difficult for the economy to recharge at a fast clip.