Crude oil volatility affects Asian markets

Many Asian stock market indices posted losses on Friday after a retreat of oil prices and also due to the U.S. stock market’s slide from this year’s high. The U.S. S&P 500 on Thursday slipped by 0.4%, after reaching this year’s highest level to date at 2,104.76. Traders were also cautions as the European Central Bank (ECB) decided to hold from adjusting the interest rates, and after last month’s resolution to trim interest rates further into negative territory thus increasing the size of its quantitative easing programme.

The ECB’s decision managed to lift the U.S. dollar index, a gauge of the U.S. currency against a specific number of other peers. Even thought he ECB decided to intensify its monetary stimulus programme in March, the Eurozone’s common currency moved upwards. The euro was instead driven by the dollar’s weakness as a number of investors have adjusted their expectations for a lower number of interest rate increases by the Federal Reserve (Fed) within the year than initially estimated. It has been repeatedly reassured by President Mario Draghi that the ECB will remain standby for further interventions in case that the Eurozone inflation will continue moving below expectations.

The EUR/USD on Thursday was particularly volatile but ended the trading session with marginal losses of 0.01%. On Friday, the world’s most popular currency pair continued with losses by 0.6% while on a weekly basis there were also losses by 0.6%. The EUR/USD ended the trading week at 1.12244.

The dollar’s strength on Friday was amplified by losses sustained by the crude oil and also commodities. Brent Crude fell as low as 2.6% on Thursday before recovering within the day to marginally above $45 per barrel. Similarly, West Texas Intermediary (WTI) also recovered initial losses and ended the trading day at $43.10 per barrel. Crude oil’s performance is not only affecting the dollar, but also global stock markets as many of them have become increasingly reliant on the black gold’s performance. Asian stock markets have been negatively affected by the crude oil’s losses as the Japanese Nikkei 225 edged downwards by 0.6%. The Shanghai Composite Index decreased by 0.4%, while the South Korean KOSPI and Indian CNX Nifty moved with losses by 0.4% and 0.12% respectively.

Traders have been closely monitoring the performance of crude oil during last week following some of the major producers’ failure to agree on output freeze. And although many were even expecting even more losses, the crude oil’s price managed to soar after the International Energy Agency’s (IEA) comments that there might be adequate demand to absorb output levels within the rest of the year. The latest developments do not provide any concrete reassurances to the crude oil’s upcoming price level, and so more volatility could be expected within the week for the ‘black gold’.