Russia to join OPEC supply cut deal

The Brent oil contract jumped to its highest level this year overnight after Russia said it was prepared to join an OPEC supply deal after it is finalised in November.

Source: Bloomberg

Brent trimmed some of its gains later in the session to close up 2% at US$52.96 while WTI oil gained 2.8% and closed at US$51.2. The rally was purely sentiment-driven as the details of how this would actually work are still pretty thin on the ground, but given Russia is the biggest oil producer in the world any deal that gets them to cut back will be seen as a big positive for the oil market.

The oil market news proved immensely positive for equities overnight with European equities moving higher across the board after three days of losses. Even European banking stocks moved higher, helped along by some better than expected Italian industrial production data. Deutsche Bank gained 3.4% after Austrian Hans Joerg Schelling said that he believed things with the US could be worked out.

US equities also moved higher with the S&P 500 gaining 0.4%. Energy stocks led the way with the sector reaching a three-month high. And the VIX volatility index continued to decline to 13.36.

The Bloomberg Commodity Index moved 1.3% higher, helped significantly by the oil price gain. But copper also saw a big 1.3% gain. And the return of Chinese markets saw big catch up gains in Dalian iron ore futures and the Qingdao iron ore price.

The DXY US dollar index continued to move 0.3% higher overnight as the WIRP bond market implied probability of a December rate hike moved up to 69.2%. Early polls continue to show Hillary Clinton’s election odds pulling ahead, and, despite a reasonable debate performance by Trump yesterday, Republican Speaker of the House Paul Ryan announced he would no longer defend or campaign with Donald Trump. This is a strong signal that many of the Republican establishment believe Trump’s campaign is so toxic that they are seeking to dissociate themselves from it in the hopes of having their future careers tarred by it. Although that seems unlikely, and the only person who really came out of last night’s debate looking good was Kenneth Bone.

The US dollar gained against the euro, yen and pound overnight. But the rally in oil and copper saw the Canadian dollar put in the best performance of the night gaining almost a full 1% against the USD.

The Aussie dollar also rallied on the move up in commodities with the solid gains in the Chinese commodity futures prices and the gain in copper as well. The Aussie touched an intra-day session high of US$0.7628, but ultimately pulled back to close around US$0.7604 about 0.3% higher.

Asian markets all look set to open higher. With the EEM Emerging markets ETF gaining 1% overnight. The ASHR China ETF also gained 0.3% boding well for the session in the greater China bourses. The pullback in the yen will be welcomed by the Nikkei, which looks set to open 1% higher.

The ASX SPI futures are also pointing to a 20 point rise at the open. And the rally in commodities bodes well for the index as a whole, which helped BHP’s ADR gain 1.5% overnight.

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