OPEC disappoints but inventories help the oil price

The ECB and OPEC meetings overnight both failed to announce any ground-breaking news.

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The ECB marginally upgraded their 2016 GDP and inflation forecasts, but otherwise continued in a similar holding pattern to their previous statement. OPEC unsurprisingly failed to agree on anything. The market got very excited about a potential output ceiling despite OPEC usually ignoring these ceilings in the past and key members, Saudi Arabia and Iran, fighting multiple proxy wars against each other. However, the oil price did regain much of its losses after the weekly US EIA oil inventories declined by 1.4 million barrels, its third weekly decline in a row.

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But US markets were buoyed by the solid print from the ADP payrolls number, which added 173,000 jobs in May and April was revised higher by 10,000 jobs. This helped the DXY dollar index recover much of its losses and add 0.1%.

The ADP employment number bodes well for the all-important Non-Farm Payrolls (NFP) number released this evening. With the Fed consistently emphasising the likelihood of a rate hike in June or July, the onus on the US data is to not be terrible. The ADP was a solid number and, if similarly borne out in the NFP, should see markets continue to firm up their pricing of a July rate hike.

One currency that was relatively unmoved by the US strength was the Japanese yen. Markets were hoping for the announcement of a major fiscal spending package alongside the delaying of the April 2017 tax hike. Expectations for further stimulus from the Bank of Japan at 16 June meeting are fairly low, so the market was really looking to the government to step up the fiscal easing to help weaken the Japanese yen. The market was ultimately disappointed and the yen dropped 0.6% overnight.

Asian markets look keen to follow US markets higher after a difficult session yesterday. Iron ore and the copper price both dropped further overnight, but BHP’s ADR managed to move higher so the materials and energy sectors may not be too much of a drag on the market today. CBA’s ADR lost another 1.6%, however, showing that the selling in the banks may not be over as the strong 1Q Australian GDP hast cast doubts on the yield-hunters forecasts for interest rates.

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