Sean Callow, Research Analyst at Westpac, suggests that the US equities remain sensitive to oil’s large prices swings, with the correlation of daily percentage changes in WTI crude oil futures and the S&P 500 running at a solid 0.60 so far this year. Key Quotes “The mood of global markets has improved this week, with the S&P 500 following 5 straight losses with 3 straight gains, USD/JPY panic subsiding and market pricing for a Federal Reserve hike by the Dec 2016 meeting rebounding from a negligible 11% chance a week ago to 33% on Wed. This is not to say that markets are particularly calm. Daily movements in equity markets remain large and the role of oil prices is a concern. And oil market volatility remains high: WTI futures haven’t finished a day with a change of less than 1% since 13 January. Moreover, we have to wonder about the sustainability of the oil price recovery. Even in the rather unlikely event that OPEC and Russia do hold their production steady at January levels, these are historically very high rates of output that will be more than ample to meet demand. Still, short term we look for the US economy to provide some positive news that might help wean Wall Street off oil prices. Jan retail spending was encouraging as was manufacturing output and our surprise index model continues to indicate scope for data improvement. USD should be able to grind higher against the likes of EUR, JPY and CHF in the coming weeks despite a cautious Fed.” For more information, read our latest forex news.