OPEC+ extending key oil production cuts :: InvestMacro

By JustMarkets

On Friday, the Dow Jones (US30) Index gained 1.51% (for the week -1.03%), while the S&P 500 (US500) Index was up by 0.80% (for the week -0.07%). The NASDAQ Technology Index (US100) closed negative 0.01% (for the week -0.31%). Stocks rallied sharply in the last 20 minutes of the session on Friday, reversing losses seen earlier in the day. The volatility arose partly due to the last trading day of the month and the rebalancing of some stock indexes.

On Friday, the US equity indices received support from a 4.6 bps decline in 10-year T-note yields on the back of the expected US PCE deflator, which kept hopes alive for a Fed interest rate cut later this year. The April PCE deflator report of 0.3% m/m and 2.7% y/y was unchanged from March and in line with market expectations. The April report on core PCE deflator 0.2% m/m and 2.8% y/y also matched market expectations. The nominal and real PCE deflators are still well above the Fed’s 2% inflation target, but these measures are at least near or at 3-year lows. The PCE deflator is the Fed’s preferred measure of inflation.

Dell Technologies (DELL) fell 17.87% after reporting earnings that were below expectations and undermined high hopes for the company’s artificial intelligence server products.

Equity markets in Europe were mostly up on Friday. Germany’s DAX (DE40) rose by 0.01% (for the week -1.10%), France’s CAC 40 (FR40) closed up 0.18% (for the week -1.18%), Spain’s IBEX 35 (ES35) fell by 0.14% (for the week +0.55%), and the UK’s FTSE 100 (UK100) closed positive 0.54% (for the week -0.77%).

Eurozone government bond yields rose on Friday amid a disappointing Eurozone CPI report. The preliminary Eurozone CPI for May rose to 2.6% y/y from 2.4% in April and was slightly stronger than market expectations of 2.5%. Eurozone preliminary core CPI for May rose to 2.9% y/y from 2.7% in April and was stronger than market expectations of 2.7%. After this week’s meeting, Friday’s CPI report dampened expectations of a further ECB rate cut. Swaps estimate the probability of a 25 bps ECB rate cut at the next meeting on June 6 at 96%. If the ECB cuts rates by 25 bps this week as expected, markets expect a 0% probability of another rate cut at the next meeting on July 18 and a 50% probability of a rate cut at the September 12 meeting.

OPEC+ has extended production cuts in an attempt to support a fragile market and has also set a date for oil production to resume later this year. This includes a voluntary production cut of 3.66 million bpd expiring at the end of 2024 and extending another round of cuts of 2.2 million bpd through the end of the third quarter of this year. Meanwhile, eight OPEC+ countries have said they plan to phase out additional cuts of 2.2 million bpd annually from October 2024 to September 2025.

Asian markets were mostly up last week. Japan’s Nikkei 225 (JP225) was down 0.72% for the week, China’s FTSE China A50 (CHA50) decreased by 0.89% for the week, Hong Kong’s Hang Seng (HK50) lost 2.83% for the week, and Australia’s ASX 200 (AU200) was positive 0.96%.

The offshore yuan fell to 7.263 per dollar, primarily due to seasonal demand for foreign currency, which puts downward pressure on the exchange rate. Such demand usually occurs between May and August, when Chinese companies listed overseas must buy foreign currencies to pay dividends to their shareholders abroad, forcing them to sell yuan.

The Caixin China Manufacturing PMI rose to 51.7 in May 2024 from 51.4 in April, beating forecasts of 51.5. It was the seventh straight month of growth in factory activity and the fastest pace since June 2022, as output rose by the most in 23 months amid a rise in new orders.

Indonesia’s annual inflation rate for May 2024 eased to 2.84% from 3.0% in April, beating market expectations of 2.94%. It was the lowest since February and remained within the central bank’s target range of 1.5% to 3.5% as food prices rose the least since January (6.18% vs. 7.04% in April).

The S&P Global Vietnam Manufacturing PMI stood at 50.3 in May 2024, unchanged from the previous month. This marked the second consecutive month of increased activity at enterprises because of strong growth in new orders and accelerating output growth. Foreign sales increased, albeit to a lesser extent than total new orders. Although employment declined for the second consecutive month, work in progress remained stable, and purchasing activity picked up again as demand for products increased.

S&P 500 (US500) 5,277.51 +42.03 (+0.80%)

Dow Jones (US30) 38,686.32 +574.84 (+1.51%)

DAX (DE40) 18,497.94 +1.15 (+0.01%)

FTSE 100 (UK100) 8,275.38 +44.33 (+0.54%)

USD Index 104.63 −0.09 (−0.09%)

Important events today:

• – Australia Manufacturing PMI (m/m) at 02:00 (GMT+3);
• – Japan Manufacturing PMI (m/m) at 03:30 (GMT+3);
• – Caixin China Manufacturing PMI (m/m) at 04:45 (GMT+3);
• – Switzerland Manufacturing PMI (m/m) at 10:30 (GMT+3);
• – German Manufacturing PMI (m/m) at 10:55 (GMT+3);
• – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
• – UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
• – US ISM Manufacturing PMI (m/m) at 17:00 (GMT+3).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.