The FT's markets team asks if the rally in oil prices will continue this year, finds central banks' QE heading for a tipping point and notes the return of special purpose acquisition companies as a result of bull markets
Produced by Alessia Giustiniano. Graphics by Russell Birkett.
Oil bulls have been running the Brent market for the past six months with prices rallying more than 50% since June, to above $68 a barrel. But a key test of whether the rally will continue in 2018 centres on two key price targets within touching distance of the charts.
The first at $69.63 a barrel marks the high point for Brent, since prices tumbled from above $115 in mid-2014. That level, touched briefly in May 2015, turned out to be a premature relief rally before crude continued its descent, eventually bottoming below $30 a barrel in early 2016. But it remains a marker for bulls to shoot for. And failure to breach it could undermine the case, at least in the minds of technically driven traders, for further gains.
The next level is the big price target for chartists. $71.38 a barrel marks the 50% retracement from oil's mid-2014 highs over $150 a barrel, to its low point below 30. That gives outsized importance for traders who track Fibonacci patterns.
Chart points like these tend to attract clusters of sell stops from technically and non-technically minded traders alike. And setting up a shutdown if the oil market keeps marching higher.
2018 promises to be an inflexion point for central banks. The Federal Reserve has started reducing the pile of bonds it acquired after the financial crisis, in a process that will accelerate in the year ahead. The ECB started to trim its QE programme in 2017, and is expected to end it all together in September.
Even the Bank of Japan is expected to raise its bond yield target slightly later this year. US bank Wells Fargo estimates that central banks have absorbed more than all the bonds issued by G10 governments over the past two years. But this year they will only buy 40% of the overall debt issuance. This adds up to a large demand shortfall that will have to be filled.
High-flying equity prices on Wall Street in 2017 have been accompanied by the return of an old bull market favourite, special purpose acquisition companies, known as Spacs. Following years of subdued activity after the financial crisis, these lucky dip deals are back in a big way, as markets trade around new highs. In 2017 investors handed around $10 billion to newly minted companies that have only a vague idea of what they'll do with the money. That is up about 180% from a year ago, and not far short of the record $12 billion haul of 2007.