Monday Morning Coffee - Markets Update 03 Apr 2023 - Surprise OPEC+ production cut pushed markets higher
Markets Update: Surprise OPEC+ production cut pushed markets higher.
Mon, 03 Apr 2023 08:17 CET
Today's important market events:
The Asia-Pacific (APAC) stock markets experienced mostly positive gains, led by strength in the energy sector. However, gains were limited due to disappointing Chinese Caixin Manufacturing PMI data. Crude oil prices rose after OPEC+ members announced surprise voluntary output cuts of over 1 million barrels per day from May until the end of the year. In the US, Federal Reserve official Waller stated that recent data indicates inflation can be reduced quickly with little harm to the jobs market. European equity futures are expected to open slightly lower, with the Euro Stoxx 50 down 0.2% after closing up 0.7% on Friday. The US dollar index (DXY) is stronger against its peers and is trading above 103, while the Japanese yen (JPY) is lagging behind other major currencies and the EUR/USD is below 1.08.
The ASX 200 (Australian Stock Exchange) saw gains supported by energy-related stocks, while market pricing suggests that the Reserve Bank of Australia (RBA) is likely to pause at its upcoming meeting. Analysts are divided on whether the RBA will hike interest rates or maintain the current rate. The Nikkei 225 (Japanese Stock Exchange) recorded modest gains, but the upside was limited due to the mixed Tankan survey results. The large manufacturers' sentiment index deteriorated for the fifth consecutive quarter, reaching its lowest level since December 2020.
The Hang Seng (Hong Kong Stock Exchange) and Shanghai Composite (Chinese Stock Exchange) saw mixed results, with caution in the price action following the Chinese Caixin Manufacturing PMI report, which showed that activity was flat in March. The People's Bank of China (PBoC) also implemented a substantial liquidity drain. US equity futures were lackluster, with the markets uncertain about the impact of higher oil prices on the Federal Reserve's policy. European equity futures indicate a slightly lower opening, with the Euro Stoxx 50 down 0.2% after the cash market closed up 0.7% on Friday.
The DXY (US Dollar Index) remained strong against major currencies, sitting above the 103 handle due to higher yields and inflationary pressure caused by the boost in oil prices. Comments from Fed's Cook suggested that the central bank may have more work to do if the economic data continues to show strength. The EUR/USD retreated below 1.0800 due to mixed rhetoric from ECB's de Guindos on inflation. While headline inflation is expected to decline, underlying inflation dynamics are likely to remain strong. The GBP/USD extended its retreat from Friday's levels and was trading below 1.2300. The USD/JPY was positive, supported by the widening US-Japan short-end yield differentials and a mixed Tankan survey. The Antipodeans (currencies from Australia and New Zealand) were subdued ahead of the upcoming central bank policy decisions from both the RBA and RBNZ. The PBoC (People's Bank of China) set the USD/CNY mid-point at 6.8805, slightly lower than the expected level of 6.8820 and higher than the previous level of 6.8717.
In the fixed income market, 10yr UST (US Treasury) futures pulled back after last Friday's gains, mainly due to the advances in oil prices and their potential to spur inflationary concerns. Bund futures traded rangebound with prices lacklustre after failing to hold above the 136.00 level. 10yr JGB (Japanese Government Bond) futures were pressured amid the lack of additional purchases by the BoJ (Bank of Japan), which also widened the ranges of potential buying amounts for this month's scheduled government bond purchases.
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OPEC+ members, including Saudi Arabia and Russia, have announced voluntary oil output cuts totalling over 1 million barrels per day from May until year-end in response to market volatility. Other member states are expected to follow suit.
Iraq has also agreed to reduce its oil output, while reaching a deal with KRG to resume northern oil exports.
The US National Security Council has expressed its view that production cuts are not advisable at this time given market uncertainty and that the Biden administration's focus is on prices for US consumers.
The EU Energy Commissioner has commented on proposed provisions allowing a halt of Russian and Belarusian LNG imports, as well as an agreement on higher renewable targets for member states.
India has extended export restrictions on gasoline and diesel to ensure domestic fuel availability.
Spot gold prices were pressured by a stronger dollar and Fed rate hike bets, while copper futures declined after disappointing Chinese manufacturing data.
Upcoming events include the release of the US ISM Manufacturing data and a speech from Fed official Bullard.