Early Morning Call: oil prices rise after more voluntary cuts following OPEC+ meeting
At this weekend's OPEC+ meeting, members decided to extend the existing production cuts. On top of this deal, Saudi Arabia will make a deep cut to its output.
On Friday, stronger-than-expected non-farm payrolls (NFP) gave a boost to US and European stocks. The S&P 500 was a whisker away from breaking 10-month resistance.
According to the report 339,000 jobs were created in May, beating market expectations of 190,000. April job creations were also revised upwardly to 294,000.
On Monday, APAC indices mostly rose, following the lead of US and Europe equity markets.
OPEC+ oil cuts
At this weekend's OPEC+ meeting, members decided to extend the existing production cuts. In April, the organisation put in place cuts of 3.66 million barrels per day (bpd): 2 million bpd agreed last year and voluntary cuts of 1.66 million bpd. These were in place until the end of this year. They now have been extended until the end of 2024.
On top of this deal, Saudi Arabia will make a deep cut to its output. "The ice on the cake. A Saudi Lollipop", as described by the Saudi Energy Minister Prince Abdulaziz bin Salman. The country's output will drop to nine million barrels per day in July from around 10 million bpd in May.
Saudi Arabia only has one objective in mind, lifting prices. It needs prices at $81 if it wants to break-even in 2023. This decision to go solo highlights the tensions between countries in the organisation. Saudi Arabia is clearly annoyed that Russia is feeding the market with cheap oil.
After the last OPEC+ meeting in April, Brent jumped by around $9, but prices have since retreated since. When oil markets reopened on Monday, Brent immediately rose as high as $78.68, but has since deflated.
China's Caixin/S&P Global services PMI rose for a fifth straight month to 57.1 in May. As was the case for the manufacturing sector, the private sector survey contrasts with the official PMI released last week. It also remained in expansion territory but slowed on the previous month.
The Caixin/S&P's composite PMI, which includes both manufacturing and services activity, rose to 55.6 highest since December 2020.
German exports rose unexpectedly in April, increasing by 1.2% on the previous month. A Reuters poll had predicted a month-on-month (MoM) decline of 2.5%.
Exports were boosted by deliveries to China following its reopening. Exports to China were up 10.1%, the office said. Imports fell by 1.7% compared with March, versus analysts' expectations for a 1.0% fall.
A few more indicators are expected today. In the eurozone, producer price index is expected to fall by 3.1% in April MoM, and rise by only 1.4% on a year-on-year (YoY) basis, after 5.9% the previous month.
In the US, ISM services PMI is expected at 3pm, and is forecast to rise to 52.3 in May, after 51.9 in April. And factory orders: the market sees a 0.8% increase in April MoM.
Currency traders await two central bank decisions this week. On Tuesday the Reserve Bank of Australia (RBA) is expected to keep key interest rates unchanged at 3.85%, after an unexpected 25 basis point increase last month.
And on Wednesday, the Bank of Canada (BoC) is also expected to stay put at 4.5%. The Australian dollar is roughly back to where it was at the time of the RBA's last decision, on 2nd May. The RBA board was divided but eventually decided to hike its cash rate as inflation remains too high and the unemployment rate is at its lowest point in nearly half a century. Economists polled by Reuters economists published last Friday expect the RBA cash rate to reach 4.1% by end of the third quarter (Q3).
As for USD/CAD, trading has been fairly choppy since the BoC's last decision is April.
Elsewhere on the equity market, a study lead by Yale University that involved 700 patients for three years concluded that AstraZeneca's lung cancer drug Tagrisso cuts the risk of death by more than half. This only concerns patients with a certain form of lung cancer who were diagnosed early enough to have their tumour surgically removed.
Tagrisso is already the crown jewel in AstraZeneca's portfolio, raking in $5.4 billion last year.
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