Summary:
- German coalition talks fail over the weekend
- Euro and DE30 slide on political uncertainty
- Merkel not planning on German minority government
- Oil drops as spec longs hit record highs
- CFTC analysis shows interesting situation on Corn and Coffee
- Bitcoin soars above $8000
German chancellor Angela Merkel had to concede defeat over the weekend as she failed to forge a new government after the election which took place roughly two months ago. Merkel said that she regretted a FDP’s decision to pull out of coalition talks on forming a government as immigration was reportedly the main sticking point.
This afternoon two contrasting developments have changed the outlook with the first being positive for the markets as German president Frank- Walter Steinmeier delivering a speech during which he encouraged talks for a coalition.
However, not long afterwards some comments from Merkel that she was not looking to form a minority government have ruled out what was probably a fairly market neutral outcome. There now remains two possibilities; firstly a coalition is still formed or secondly the Germans head back to the polls. The second would likely be deemed the worst outcome for the Euro and the DE30 as this would prolong the uncertainty and raise the chances of an even less favourable outcome from the ballot box.
One of the biggest movers today has been oil with both Brent and WTI falling lower at the start of the week. Any declines seen in the Oil.WTI price could be exaggerated due to the extreme high levels of speculative positioning in the market. These net-longs, which can be seen as a contrarian indicator, reached 596k contracts last week which is the highest they’ve been in more than a decade.
In our analysis of the CFTC data last week we focused on the FX market pointing, among others, to high positioning in AUD and very low in the JPY – as one can see, AUDJPY slumped in following days, confirming that analyzing extreme positioning of speculative investors could make sense. This time we turn our attention to soft commodities – we selected corn and coffee where extremely low positioning could herald a turnaround.
The Bitcoin rally is showing little sign of ending anytime soon with the market rising once more today to post yet another all-time high. The failure to see a sustained sell-off following the suspension of SEGWIT2X is a very positive sign for the bulls as it appears there remains strong demand for the market despite it being slow and clunky for transactions. Hedge funds interest is reportedly increasing and this could provide yet more buying in the market.