In an otherwise quiet session in which European shares dropped, Asian equities rose and S&P500 futures were little changed, crude oil surged above $49 on high volume, after the Saudi and Russian energy ministers said in Beijing they favor extending the OPEC production cut for 9 months, though the end of Q1 2018. WTI rose more than 3%, rising above the 50DMA, climbing to the highest intraday price in almost two weeks after the comments, with subsequent comments by Putin pushing crude to session highs, and Brent above both its 200 and 50 DMA. While output curbs that started Jan. 1 are supposedly working according to the Saudi and Russian energy ministers, clearly debatable considering there has barely been any reduction in the record global inventory glut during the first 4 months of the OPEC production cut - global inventories aren’t yet at the level targeted by OPEC and its allies, Saudi Energy Minister Khalid Al-Falih said in Beijing alongside his Russian counterpart, Alexander Novak. “The agreement needs to be extended as we will not reach the desired inventory level by end of June,” Saudi Arabian minister Khalid Al-Falih said at event with Russian counterpart Alexander Novak. “Therefore we came to the conclusion that ending will probably be better by the end of first quarter 2018” The ministers agreed the deal should be extended through the first quarter of 2018 at the same volume of reductions, which however according to many analysts won't be enough to decidedly lower inventories considering the recent rebound in Libya and Nigeria production as well as a the near-record production out of the US. For now, however, it was enough to send oil surging wiping out more than 2 weeks of losses...
"This recovery in the oil and gas sector could well continue this morning on reports that Saudi Arabia and Russia have agreed to do 'whatever it takes' to keep a floor under oil," Michael Hewson, chief market analyst at CMC Markets, told Reuters. "(That) has prompted oil prices to extend last week’s gains."
“The foundation for the morning has been laid but it’s still managing to build on the initial gains we saw,” said Ole Hansen, head of commodities strategy at Saxo Bank. “It’s back in a bit of a sweet spot again”
Oil got a second win overnight, when moment ago President Vladimir Putin spoke at news conference in China, saying that he met with management of Russian oil and gas producers, and confirmed that Russia supports extending accord with OPEC on limiting oil output.
“I think it’s right that the decision was made not for two, three, four months but for nine months, until the middle of next year. That is the most important condition for stability.” The Russian leader also said that he sees good chance for extending cooperation with OPEC as Saudi Arabia is interested in price stability and is complying with obligations.
As a result of the overnight oil fireworkes, Brent crude set fresh day high at $52.52/bbl, up 3.3% just after 6am ET; above the 50-day MA of $52.32, after earlier breaking above the 200-day MA, which is now at $51.73. WTI also sets fresh day-high, rising as much as 3.4% to $49.45, and also set to rise above its 50-day MA at $49.49.
"While this announcement should allay some concerns in the market and lead to a short-covering rally, given the current bearish tint to sentiment, there is no guarantee of a sustained rally," said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London.
Meanwhile the elephant in the room, global oil demand, continues to decline, and there is no amount of OPEC jawboning that can do anything about that...
# Christopher Johnson ✔ @chris1reuters #India #oil demand growth is slowing and may be only +185,000 bpd this year, says JBC #Energy, vs +290,000 in 2016 ( @IEA )#OPEC #OOTT #gas
The crude gains offered some respite after what’s been a miserable few weeks for many commodities, amid Trump’s struggle to get his infrastructure plan underway and tightening credit in China. Meanwhile, investors are sifting various macro events in a bid to gauge the strength of the global economy. During the weekend and overnight, China's President Xi Jinping laid out a sweeping framework for Chinese-style globalization before data showed the country’s factory output and investment slowed in April. Numbers on American retail sales and inflation also cast a shadow on growth.
At a time when central bank policymakers are wondering if they have successfully got consumer prices moving upward again, oil has been rising steadily for two weeks and may again start to boost headline rates of inflation in the months ahead.
Looking at global stock markets, Asian stock markets shrugged off worries over the 'ransomware' cyber attack to reach a two-year high. Hong Kong shares gained 0.9 percent and their mainland equivalents 0.4 percent, after Beijing soothed market fears of tighter regulation saying bank risks were "completely controllable." China shares trading in Hong Kong rallied to the highest level since March, as President Xi Jinping’s plans for an international infrastructure program overshadowed data showing slower growth in factory output and investment. Tokyo shares almost erased earlier losses as the yen weakened and investors assessed a wave of corporate earnings.
The Stoxx Europe 600 was slighlty in the red London, after touching the highest level since August 2015 last week.
A blowout victory for Angela Merkel's conservatives in a regional election in Germany's most populous state also helped share indices in London, Frankfurt and Madrid inch higher in early trade.
S&P 500 futures were little changed, up less than 0.1%, after cash equities dropped 0.4% last week, posting their first back-to-back drop since mid-April as investors awaited earnings reports this week. As European bond markets got going on Monday, U.S. Treasury yields gained less from the oil bounce than their German equivalents.
"The shadow of Friday's softer U.S. CPI and retail sales data hangs over markets this morning," Societe Generale analyst Kit Juckes said in a note to clients. "The inability of the dollar to gain more, reflects the changing global landscape as recovery elsewhere drives rates and yields a bit higher. With a thin U.S. data calendar, there's not much to propel yields or the dollar back up"...
*) Bulletin Headline Summary;
- Energy has been seen higher throughout the European session as Saudi and Russia look to commit to further output cuts
- This initially supported European equities before gains were shed alongside the firmer EUR in what's been a particularly quiet session thus far
- Looking ahead, highlights include NY Empire State Manufacturing
*) Global Market Snapshot;
- S&P 500 futures up 0.1% to 2,390
- STOXX Europe 600 down 0.2% to 394.91
- Nikkei down 0.07% to 19,869.85
- Hang Seng Index up 0.9% to 25,371.59
- Shanghai Composite up 0.2% to 3,090.23
- Sensex up 0.4% to 30,315.80
- German 10Y yield rose 2.2 bps to 0.413%
- Euro up 0.1% to 1.0946 per US$
- Brent Futures up 3.3% to $52.52/bbl
- Italian 10Y yield fell 4.2 bps to 1.957%
- Spanish 10Y yield rose 3.5 bps to 1.662%
- Gold spot up 0.1% to $1,229.71
- U.S. Dollar Index down 0.2% to 99.07
*) Top Overnight News from Bloomberg;
- Saudi Arabia and Russia said they favor prolonging oil- output cuts by global producers through the end of the first quarter of 2018, setting a firmer timeframe for a likely extension of the curbs into next year. Crude prices jumped.
- An unrivaled global cyber attack is poised to continue, claiming victims Monday as people return to work and turn on their desktop computers, even as hospitals and other facilities gained the upper hand against the first wave.
- Chancellor Angela Merkel is picking up a tailwind for Germany’s election in September, strengthening her position at home and on the global stage ahead of a series of summits with fellow leaders including President Donald Trump.
- Thermo Fisher Said in Talks to Buy Drug Ingredient Maker Patheon
- Fox Said Willing to Make Concessions to Win Approval for Sky Bid
- Indonesia Eyes End-June for Conclusion of Talks With Freeport
- New Wave of Ransom Threats Seen in Unprecedented Attack
- Microsoft Comments on Implications of ’WannaCrypt’ Attacks
- Vodafone Sells $2.6 Billion Safaricom Stake to S. African Unit
- Benettons’ Atlantia Makes $17.9 Billion Bid to Buy Abertis
- JPMorgan Agrees to Acquire Dublin Office Block From KWE Venture
- Avis President, CFO Resigns After Weak Results; Shares Down
- GE Sees No Change to Engine Output Plans After 737 Grounding
- U.S. Co. Said to Be Frontrunner for Aramco JV Partner: Reuters
*) Asian equity markets traded mixed amid renewed geopolitical concerns after North Korea conducted another missile test, while participants also digested a slew of disappointing Chinese data. Nikkei 225 (-0.1%) and ASX 200 (flat) were initially weighed on by following the missile test which was said to be a new type of missile capable of carrying a large nuclear warhead before recovering into the close. Shanghai Comp. (+0.2%) and Hang Seng (+0.9%) were positive with sentiment underpinned by strong lending data and after China pledged USD 124b1n investment for the Belt and Road initiative, although upside was capped after Industrial Production and Retail Sales disappointed. Finally, 10yr JGBs traded with mild gains amid a cautious tone in the region, while the curve flattened as the long-end outperformed.
# Top Asian News;
- MUFG Sees Profit Rising 2.5% as Japan Bank Withstands Low Rates
- Sumitomo Mitsui Joins Mizuho in Forecasting Decline in Profit
- Mizuho Sees Profit Falling 8.9% as Negative Rates Sap Earnings
- China Said to Plan 6% Cap on Gas Sellers’ Investment Returns
- Orix Targets 300b Net Income This Year, in Line With Estimates
- Xi Pushes Chinese-Led Globalization After Pledging $78 Billion
- Man Who Helped Bury Lehman Turns to Saving Troubled Trader Noble
- Nomura Real Estate Shares Surge as Japan Post Said to Seek Stake
- Iskandar Waterfront Surges After Bandar Malaysia Stake Report
- Vietnamese Emperor’s Rolex Sells for Record $5 Million in Geneva
*) European sentiment has been driven by the surge in oil prices, higher by over 3%, after Russia and Saudi Arabia agree to extend oil output cuts to March 2018. As such, global equities began the week on a firmer note with large energy names leading the charge, subsequently offsetting the rising geopolitical political concerns surrounding N. Korea after they launch another ballistic missile. Alongside this, the DAX reached all time highs with the index also supported by Merkel's key state victory over the ruling Social Democrats in North Whine Westphalia (largest state by population), lifting hopes that Merkel will retain power in Septembers election. However, gains have been shed heading into the North American crossover alongside a firmer EUR and light newsflow. In credit markets, global bond yields tick higher in light of the upside in EU bourses this morning, bund curve has seen some modest bear steepening. Slight underperformance in the periphery market with bono's and PGB's up 3.4 and 3.3bps respectively, focus will be on comments from Draghi, Praet and Constancio throughout the week as participants will scrutinise as to whether Friday's Der Spiegel article was really 'a signal' of the board converging towards tapering starting in January 2018.
# Top European News;
- RWE Leads DAX to Record as Utility Pledges Dividend Return
- Popular Denies News Reports on ECB Inspection, Comments
- Deutsche Bank: Broeksmit Probe Brought ‘No Significant Findings’
- 888 Plunges as U.K. Regulator Reviews Problem-Gambling Controls
- ECB to Start Publishing Additional Data on Securities Lending
- Czech Premier Rejects ANO Party’s Candidate for Finance Minister
# In currencies, the Bloomberg Dollar Spot Index slipped 0.2 percent after falling 0.4 percent Friday. The yen fell 0.2 percent, and the euro added 0.1 percent to $1.0945. It has been a relatively active morning in the FX market, as we factor in the impact of the Oil price rise on the CAD. News of an extension deal in principle from Saudi Arabia have given the ailing CAD some much needed relief, but tech traders have limited the spot sell off to 1.3625/7 or so, as 1.3600 is now support. The JPY is on the back foot as risk sentiment is also boosted by the above developments, with USD/JPY rising against the tide of general USD softness after the inflation/retail sales numbers last week continue to weigh on US Tsy yields. 114.00 looks out of reach, cross JPY gains look a little more comfortable under the circumstances. EUR/USD is edging higher again, but may face some congestion circa 1.0950 as we have 2 yards of expiries at this level which will prompt some 2 way flow from the options market. Cable is also back on the front foot as GBP losses in the wake of the BoE meeting and QIR were arrested ahead of 1.2800. It looks like we may be in for another test on 1.3000, but we have plenty of key data releases out of the UK this week, so caution may set in. This is pulling EUR/GBP lower again as a result, but very slowly.
# In commodities, WTI jumped over 3% to $49.40 a barrel, after climbing 3.5 percent last week. Gold rose 0.1 percent to $1,230.20 an ounce, extending gains to a third day. Copper increased 0.8 percent while aluminum rose 0.7 percent. Zinc added 0.7 percent after a three-day slide. The big news today was the Saudi/Russia agreement (in principle) of a 9 month extension to the current output cut deal, and this has breathed fresh life into Oil prices as WTI moves onto a USD49.00 handle. Brent has reclaimed USD52.00, but tech based play in the former will see WTI grappling with offers ahead of USD50.00. Elsewhere, metals look to have gained a bid on the broader risk mood emanating from the above, but with another China data miss, industrial production, we would expect this to peter out, but Copper edging back into the mid USD2.50's in the meantime. Aluminium and Platinum the outperformer this morning. Tentative gains seen in Gold and Silver as Treasuries gain post US CPI. The impact of positive risk sentiment, should slow gains through USD1230.00, with USD losses likely to be moderated into June. Russia Energy Minister Novak said that Russia and Saudi Arabia agree output cuts need to be extended for 9 months. Novak also commented that more countries are invited to the May meeting in Vienna, while Saudi Energy Minister Al¬Falih stated that they recommend extending at the same terms. Some OPEC members are pushing for deeper cuts or including new participants to join the cuts, including Turkmenistan & Egypt, according to sources. There were also source reports that Venezuela told other OPEC members that it wants deeper cuts of up to 5mln BPD, which didn't gather support.
# It’s a quiet start to the week today: the May empire manufacturing reading is due along with the NAHB housing market index for May....