The week ahead will be lined with highlights such as the key OPEC meeting while China’s November PMI and US NFP data will also be in the docket.
OPEC agreement on the line
With financials and industrials taking a backseat this week, energy had helped to lead the rally alongside the telecommunications and consumer discretionary sectors for the S&P 500. This could be even more pronounced in the coming week should we find ourselves with a concrete agreement for a production cut.
The September 28 Algiers conference had seen the OPEC members come together to agree on the outline of a deal for a production while the upcoming November 30 meeting plays the key role in determining the details on how the cut will be allocated between members. As things stand, there remains some probability that we will experience a disappointment, though our base case scenario points to a freeze, regardless of how half-hearted it may be. The latest sign of hope sprinkled upon the meeting had been from Iraq, OPEC’s second-largest producer, indicating that the country would shoulder part of the burden alongside Saudi Arabia.
Should we finally see an agreement arrive from the doors of the Vienna OPEC meeting, we could be in for higher WTI futures prices, above the $50/bbl mark to the October 19 highs of $51.60/bbl. Vice versa, we could be in the setup for disappointment and prices could sink to the $40/bbl lows.
Higher US NFP expected
The final non-farm payroll data before the December Fed hike will roll in at the end of next week. The market is currently expecting a higher figure for November’s print from October’s 161k. Meanwhile the unemployment rate is expected to remain unchanged at 4.9 percent. At 100% implied probability for a December Fed hike, a higher than expected NFP figure is unlikely to deliver a strong injection of optimism from the current levels. Nevertheless, it could help to affirm the market’s belief that the economic conditions remain stable, clearing the way for the 25bps interest rate increase.
Back to the start of the month, we will once again gain insights into the health of the Chinese economy via the PMI number. The official manufacturing PMI had remained steady above the 50.0 mark, indicating an expanding economy. The latest October figure came in at 51.2 and the market is expecting November to remain close at 51.0. Should the November figure once again surge above the market consensus, Asian equity markets could receive a jolt from the current lackluster performance.
In addition to China’s PMI data, we will also see several key Asian indicators including inflation data from South Korea, Indonesia and Thailand, in addition to India and South Korea’s (final) Q3 GDP.