Today’s OPEC+++ meeting and the US Jobless Claims data are the all-consuming focus of financial markets today, leaving Asian markets treading water this morning.
If anyone needed a lesson that markets tend to see what they want to see and ignore what doesn’t fit the narrative, one only needs to look at the overnight official US crude and Gasoline Inventory data. Crude Inventories rose an astonishing 15.2 million barrels, while gasoline stocks rose by 10.5 million barrels. Both numbers were massively above forecast expectations, highlighting the demand shock being wrecked upon the US economy by the COVID-19 pandemic. They were, of course, completely ignored by the street, which is entirely focused on hopes of a massive production cut deal being agreed by the wider OPEC+++ grouping today.
If anything, the US data highlights the urgency of just such an outcome, and I remain confident that the grouping will deliver as above-ground storage runs out across the world. There is definitely an element of horse-trading going on with the oil production authorities in Oklahoma and Texas fence-sitting over whether they will officially participate. Unlike the Federal level, the state authorities do have some powers to intervene on production. The whole process is likely to go down to the wire with a failure to agree tonight an Armageddon scenario for crude producers globally.
US Jobless Claims will also claim much attention, having risen by 6.7 million last week. Forecasts at this stage vary wildly between 5.5 million and 7.0 million in new claims. Whichever way you cut it, the havoc wrecked by COVID-19 is there to see. Tenuous hopes that the worst is past for New York State, the US epicentre, is just that, tenuous. A print nearer to 7.0 million though will increase the clamour for the US economy to ease back on lockdowns, which is likely a mistake. On the positive side, though, it should give new momentum for more follow-up stimulus to emerge from Congress to offset the impact. Therefore, it is possible to somewhat bizarrely, construct a bullish recovery cash for equities, even with a high Jobless Claim number. Ahead of a long weekend around the world, as the Easter Bunny goes on strike this year, I suspect that will, in fact, be how equity markets chose to head into the break.
In a nutshell, event and data risk today have the potential in the near-term, to send the recovery trade soaring to new heights, or send it all the way back to square one.
This morning the Bank of Korea left rates unchanged at 0.75% but warned that material uncertainties about growth lay ahead. Stating the obvious aside, the BoK widened the range of bonds eligible for its open market operations, preferring to keep the monetary tap open that way rather than via further interest rate cuts.
Europe continues to do what it does best, disappoint. Efforts to agree on jointly issuing pandemic bonds backed by the governments of the entire region are still ongoing. To the surprise of no one, Germany and the Netherlands continue to hold out against putting their credit rating against a bond with Spain or Italy also written on the letterhead. With COVID-19 still raging across the EU, and ghoulish hopes of a slowing of infection and death rates looking premature, the inability of the EU to work together threatens to make a mockery of the raison d’etre of the EU in the first place. “One team, one dream” looks more like a “pipe dream” at the moment, and I do not doubt that the uncertainties caused will contribute to Europe being one of the slowest areas to recover in the post-COVID-19 world.
Equities are mixed in Asia today.
The v-shaped recovery gnomes were out in force again on Wall Street overnight, with all three major indices finishing sharply higher. The S&P 500 rising 3.35%, the NASDAQ rising 2.52% and the Dow Jones climbing 3.44%. The after-market futures though are slightly weaker in Asia which itself, is reluctant to climb aboard the Wall Street wagon train ahead of a long weekend and substantial event risk in the day ahead.
That has led to a mixed performance by Asian markets. The Nikkei 225 is down 0.60%, although the Kospi, post the Bank of Korea decision, is higher by 0.83%. Mainland China exchanges are slightly higher, the Shanghai Composite rising 0.30% and the CSI 300 rising 0.45%. A follow-on stimulus package by Hong Kong’s Government sees the Hang Seng rising 0.30%.
This morning’s outperformers are Singapore and Australia. The Straits Times has risen 1.75% boosted by the reopening of Wuhan in China and a positive outcome of the OPEC+ meeting today. Singapore has a giant petrochemicals industry. Australian markets have also risen into the long weekend, with the All ordinaries increasing 1.75% and the ASX 200 by 1.65%. Australian stocks have taken heart from ANZ’s insistence this morning that it and other local banks can continue to pay dividends, thanks to their strong capital bases.
Overall, Asia clearly prefers to sit on the side-lines today, an eminently sensible strategy given the event-risk ahead.
US Dollar modesty stronger ahead of the long weekend.
The US Dollar made modest gains overnight against both developed and emerging market currencies, the dollar index rising by 0.25% overnight and a further 0.10% this morning. There appears to be an element of haven buying supporting the greenback over the past 18 hours, ahead of today’s event risk and the long weekend on financial markets. We would expect that Asia will continue in the vein in today’s session, content to watch events play out elsewhere.
The Antipodeans and Petro-currencies continued to outperform though. The AUD and NZD both rising some 0.75% overnight to 0.6200 and 0.6000 respectively on the global recovery story and positive progress with their COVID-19 lockdowns. The arrival of the first post-lockdown cargo aircraft from Wuhan in China to Sydney overnight has also given markets hope that China is reopening for business. Both countries being reliable proxies for a China recovery. With quite a bit of good news built into prices though this week, further gains from here in both currencies will be challenging.
Investors would be well advised to keep a close eye on the CAD, MXN, RUB and NOK today, ahead of the OPEC+++ meeting. Substantial gains have been made by the Petro-currency grouping this week and further increases are possible if an acceptable agreement is hashed out. However, a failure to do so today exposes all of them to an aggressive and very large sell-off.
Oil ignores US data and rallies strongly into OPEC+++.
The nightmare prints on the official US Crude and Gasoline Inventories, as described above, were entirely ignored by energy markets overnight. Instead, both Brent crude and WTI futures had another strong rally as the world hitches its wagon to a comprehensive production cut deal emerging from today’s OPEC+++ meeting. Brent crude rose 5.50% to $32.70 a barrel and WTI rose a mighty 10.70% to $25.10 a barrel.
In WTI’s case, the rally was exaggerated by official comments from the US that US production would fall naturally by 2-3 million barrels a day over the next few months with prices at these levels. That was cold comfort to Russia, who are still insisting that the US come to the party in some official capacity. Tonight, will be interesting.
Today oil continues to push higher with some vigour in Asia. Brent crude is 1.50% higher at $33.30 a barrel, and WTI is 2.80% higher at $25.80 a barrel. I continue to believe that the OPEC+ meeting will produce a cut of 15+ million barrels a day this evening. That should be enough for oil to hold onto ts gains over recent days. However, a reduction of 10 million barrels or less will likely see profit-taking rapidly come to market pushing prices lower. A failure to reach an agreement at all will set up an emotional sell-off to near the recent lows.
Gold side-lined ahead of the long weekend.
Gold appears to have fallen off investor’s radars overnight, falling 0.25% to $1645.50 an ounce as the US Dollar rallied modestly in currency markets. It has made back those losses this morning, rising 0.20% to $1649.00 an ounce in Asia’s morning, supported by risk hedging flows ahead of the long weekend break and event risk tonight.
For now, gold appears to be in the too-hard box, falling when equities fall, but refusing to rally when equities rally. The lack of interest will continue until the correlation with equities becomes clearer.
In the meantime, gold appears content to drift between support at $1640.00 an ounce, and resistance at $1680.00 an ounce, implying that it will have a quiet finish to the shortened week.