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Oil glut fears and 'dovish' Fed depress market spirits

Oil glut fears and 'dovish' Fed depress market spirits
Falling oil prices and fears of rising protectionism following the G20 world financial leaders meeting put a dampener on global markets after last week's record highs in the UK and US.

The FTSE 100 recovered from an early 23 point fall to close unchanged on the day at 7,424, held back by weakness in energy, telecom and healthcare stocks, while in Europe the FTSEurofirst 300 shed two points to 1,489.8.

In early trading Wall Street started the week in cautious mode with the S&P 500 index flat at 2,377 although the Nasdaq tech exchange did slightly better helped by gains in Apple Inc.

Benchmark ten-year treasury yields retreated to 2.475% as US government bond prices rallied as investors digested the Federal Reserve's reluctance to push interest rates up too fast following last week's lift in the funds rate.

Initially the dollar slipped against a basket of currencies in response to the Fed's unexpectedly dovish tone. It later edged back with the pound falling 0.36% to $1.2348 against the greenback as the government confirmed  prime minister Theresa May would trigger article 50 and the formal start of EU withdrawal talks at the end of the month.

Kathleen Brooks of City Index believed the pound's fall was a knee-jerk reaction and that sterling could benefit from the Fed's less hawkish tone and that all the bad 'Brexit' news was in the price.
 
Oil prices were under pressure after figures showing an increase in US drilling activity and little let-up in supplies from Opec countries, despite the cartel's members agreement to cut output by nearly 1.8 million barrels a day.

BP (BP) slipped 0.5% to £4.61 45% and Royal Dutch Shell (RDS) shed 0.7% to £22.15 as Brent crude slid $0.34 to $51.42 a barrel, while US West Texas Intermediate (WTI) crude futures dropped $0.48 to $48.30.  

US drillers added 14 oil rigs in the week to 17 March, bringing the total up to 631. This represents the highest level since September 2015, according to energy services firm Baker Hughes. Shale production is also expected to reach a six-month high in April.

Greg McKenna, chief market strategist at brokerage AxiTrader, said the fall in crude oil prices could be attributed to ‘the cracks in the Opec/non-Opec deal’ with US shale oil back as the new swing player in production.

However, other market commentators expect oil markets will tighten soon, arguing that the Opec-led cuts will only start to take effect from April.

‘Over the coming weeks we expect a sharp reduction in imports and increase in refining runs which should lead to impressive crude inventory draws,’ analysts at AB Bernstein commented.

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