No agreement to cap or freeze oil output

September 28, 2016

European Outlook: Asian stock markets are heading south, led by a slide in Japanese markets, (Nikkei closed down -1.31%)  as more than half the companies on the benchmark traded without the right to the next dividend, a biannual event in Japan that tends to weigh on markets. Elsewhere financials remained under pressure as concerns over Deutsche Bank AG continue to weigh on the sector. Oil prices are volatile and the front end WTI future has fallen below USD 45 per barrel, as investors scale back hopes of an agreement on output limits at the OPEC meeting. Gold suffered at decline to $1325 from over $1338. U.S. stock futures are down, but the FTSE 100 future is managing slight gains. The European calendar remains relatively quiet, German consumer confidence has already reported and missed expectations (10.2) coming in at 10.0. EURUSD trades at 1.1208.

Oil headlines from Algeria: No agreement to cap or freeze oil output as early as today, but that’s not ruled out for subsequent meetings, largely in line with earlier reports. The Saudis said the gap among OPEC countries is narrowing and Russia will meet with them again in October. Iran, Libya and Nigeria should be allowed to produce at maximum levels and once that’s agreed a freeze agreement consensus could be reached by November. Meanwhile the Saudis are investing in spare capacity and can survive at current oil price levels, and don’t see the need for a significant adjustment or cut, while Russia will maintain flat supply in the meantime.

Fedspeak: As expected no surprises from Fed’s VC Fischer from his speech, however, in the following Q&A session he said that he doesn’t want to raise rates too much, noting that 3% wage gains would be consistent with a “reasonable” rate of inflation and we’re beginning to see the fruits of a high pressure labor market. This is consistent with Fischer’s interest in being preemptive on rate hikes, though Brexit and mixed data has hijacked the tightening agenda since he first wanted to do so.

US Data Reports: Revealed a surprising September consumer confidence surge to a 104.1 cycle-high led by the present situation index that bucked weak September readings for other confidence surveys, alongside a small September rise in the Richmond Fed index to a still weak -8 from -11 in August. We saw a slightly larger ISM-adjusted Richmond Fed rise to 50.8 from a 3-year low of 49.7, with gains in all the components except inventories and employment, but with a particularly large employment index drop to a -13 new expansion-low from 7. We appear to be on the cusp of an inventory reversal that will lift GDP growth, though the rise will likely not be captured until Q4.

Main Macro Events Today        

US Durable Goods – August durable goods orders expected to fall 1.4%, Shipments expected at -0.5%. Inventories expected unchanged. Durable goods ex- transport expected to fall -0.4%.

Yellen testifies and Draghi speaks – Following Mr Fischer yesterday, today his boss Mrs Yellen testifies in front of the Committee on Financial Services in Washington regarding Supervision and Regulation. Later Mr Draghi speaks in the German Bundestag with his thoughts on the current developments in the Euro area.

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