Russia’s change in stance boosted the outlook for several markets, primarily oil and indirectly for equities.
One would recall that despite the optimism that flowed from the Algeria meeting, the market sentiment had been that substantial work is needed for a comprehensive deal towards limiting oil production. Nevertheless, the Saudi Arabia led progression had just received a vote of confidence from Russia, a key non-OPEC producer. Oil prices shot up overnight as Russia voiced their willingness to support the OPEC oil production freeze. WTI prices touched a high of US$51.60/bbl, up from the sub-US$50/bbl trade at the start of the week.
While we certainly cannot discount the collective impact from Russia and OPEC, November 30 may still be too early for the market to see a deal from a precedent perspective. On production levels, it is also unlikely that we will see a cut from Russia, unlike their OPEC counterpart, Saudi Arabia. Russian Energy Minister Alexander Novak had stated that the country prefers a production freeze to a cut, limiting the impact of the agreement.
Equities received a lift from the higher oil prices coinciding with the start of the Q3 earnings season. S&P 500 index picked up 0.46% on Monday, led by the energy sector with 1.51% gains. As usual, we would expect the contagion effect to reach Asia, possibly reversing some of the losses seen in the Asian indices yesterday. CSI 300 rose 1.25% on the return from the week-long National Day, with the real estate sector the only one in red at -1.65%. Property curbs over the week long holiday dampened the outlook for the sector. H-shares reaction will be of interest to the market today given the interdependency of the two indices.
Japan’s current account surplus beats expectations
Meanwhile Japan’s August current account surprised on the upside at JPY 2.0 trillion from JPY 1.9 trillion when the market consensus had been for a drop to JPY 1.5 trillion. This is the highest figure recorded since March, reflecting an improvement in goods trade and underscored by the stronger JPY. The broadly higher USD had nevertheless brought USD/JPY up above 103.80, eyeing the 104.00 figure as of 00:30GMT. Early cable selling could have contributed to the USD strength with GBP/USD sliding to sub-1.2340 levels at last view.
Yesterday: S&P 500 +0.46%; DJIA +0.49%; DAX +1.27%; FTSE +0.75%