Originally published by Rivkin Securities
Oil prices gained on Friday as optimism around expectations for OPEC officials to announce a nine month extension of the current supply cuts when the group meets on Thursday. Comments from unidentified sources familiar with the decisions stated that “all options are open” according to Thomson Reuters, including deepening the level of current cuts. At this stage the potential for deepening cuts remains limited, with key OPEC officials playing down this possibility over the past few weeks. Officials are likely to monitor the impact of an extension of the cuts before they resort to such action, although a deepening of cuts may be required to rebalance the market with OPEC pushing out forecasts for the market to rebalance out to Q1 2018 from mid-2017.
The US Dollar Index declined -0.75% on Friday, despite a small increase in bond yields with both the 2-year and 10-year yields rising +1.3 and +1.2 basis points respectively. The currency continues to come under pressure amid continuing political controversy around the Trump administration. However this is unlikely to deter the FOMC from hiking rates when it meets on June 14th with the market implied probability of a rate hike rising back to 78.5% from 73.8% the week prior.
The euro gained +0.93% against the US dollar and +0.23% against the British pound as polls showed that Labour narrowed the gap to single digits (9 points) against the Tories ahead of the June 8th elections, causing some to re-evaluate what was seen as a likely decisive victory by PM Theresa May. Data out of the Euro-zone on Friday showed the trade surplus narrowed modestly in March to €34.1 billion from €37.8 billion and German producer prices rose, gaining +0.4% for the month in April topping estimates for +0.2% after remaining unchanged in March.
Looking ahead it’s going to be a busy week for central bankers with no less than 11 speeches by FOMC officials as well as the release of the FOMC meeting minutes from May 3rd on Thursday morning. Out of the U.S. we’ll also get a look at the advanced goods trade balance on Thursday as well as a second estimate for Q1 GDP, personal consumption and durable goods orders on Friday. Europe will also have its share of central bank speakers throughout the week along with German GDP and Euro-zone PMI reports out on Tuesday.
Japan will also be in focus with a speech by Governor Kuroda on Wednesday followed by inflation data on Friday that will likely fuel a further conversation about when the BOJ will be begin to signal a pullback from its record stimulus program, although at this stage those discussions remain premature with inflation remaining well below target.
Locally the S&P/ASX 200 index edged lower to finish down -10.9 points or -0.19% and we can expect a stronger start to trade this morning with ASX SPI200 futures closing +26 points or +0.45% higher on Friday.
Data releases:
· Japanese Merchandise Trade Balance (Mom Apr) 9:50am AEDT
· Fed’s Harker Speaks 12:00am AEDT
· Fed’s Kashkari Speaks 12:30am AEDT