OPEC Production Cut Accord Sets Tone for Wednesday’s Financial Markets

November 30, 2016

OPEC oil ministers in Vienna announced a 1.2 million barrel per day production cut to 32.5 mb/d. Saudi Arabia, Iraq and Iran are on board, and there’s reason to believe Russia will take actions to make the agreement work. It’s the first cut since 2008.

Brent oil jumped above $50, and West Texas Intermediate crude advanced 7% to $48.40 per barrel.

The dollar advanced against most other currencies, excepting the loonie,  peso and yuan. Dollar gains were most pronounced against the yen (1.1%) and Australian dollar (0.9%) but include rises of 0.6% relative to the Swiss franc, 0.5% versus the euro, 0.4% vis-a-vis stereling, and 0.3% against the kiwi.

Comex gold is 1.0% weaker at $1,179.10 per ounce.

Ten-year sovereign debt yields are up ten basis points  in the United States and Portugal. A federal funds rate hike in December is now fully priced into the market as certain to happen. Ten-year yields increased today by six basis points in Italy, five bps in Spain, four  bps in the U.K. but just a single basis point in Japan.

Share prices closed unchanged in Japan and 1.0% weaker in China but rose 1.0% in India, 0.9% in Singapore, 0.5% in Taiwan and 0.3% in South Korea. Stocks in Europe have advanced 3.7% in Greece, 1.6% in Italy, 0.8% in the U.K., 0.7% in France, 0.5% in Switzerland, 0.3% in Germany and 0.2% in Spain. Equities are climbing in North America, too, led by the energy sector.

Lots of data have been released on this final day of November.

U.S. personal spending and income increased 0.1% and 0.6% in October. The PCE price deflator, which the Fed favors, rose 0.2% on month and accelerated to a 1.4% 12-month advance from 1.2% in September and 1.0% in August. The Core PCE deflator held steady at a 1.7% annual trend for a third straight month.

ADP estimates that U.S. private sector jobs leaped 216K in November, nearly 50K more than had been assumed.

U.S.  pending home sales edged up only 0.1% in October, trimming the 12-month increase to 1.8%. The 30-year fixed mortgage rate increased 7 basis  points to 4.23% last week.

The Chicago purchasing managers index for manufacturing leaped 7.0 points to a 9-month high of 57.6 in November.

Japanese industrial production edged up 0.1% in October, causing the 12-month change to swing from +1.5% the month before to a decline of 1.3%. However, shipments increased by a healthy 2.2%, enabling inventories to drop 2.1%. Also, officials predict a powerful rebound of output in November.

Japanese small business sentiment, a gauge compiled by Shoko Chukin Bank, printed at 48.3 in November, the same reading as a 7-month high seen in October.

Japanese housing starts rose 13.7% in the year to October, the best on-year increase of 2016, while construction orders went up 15.2%, a 2-month low.  Motor vehicle production was 3.9% lower in October than a year earlier.

Chinese consumer sentiment slipped to a 3-month low of 114.7 in November versus readings of 117.1 the month before and 115.2 in September.

Consumer price inflation in the euro area edged up 0.1 percentage point to 0.6% in November, while core remained at 0.8% for a fourth straight month.

German retail sales volume jumped 2.4% in October, easily reversing September’s 1.5% slide.

German unemployment fell by an as-expected 5K in November, while job vacancies rose 3K. The jobless rate held steady at 6.0% versus 6.3% a year earlier. Employment in October was 0.8% greater than a year earlier.

French producer prices fell 0.8% in the year to October, while November CPI inflation in November edged up to 0.5% and 0.7% on a harmonized basis.

Italian PPI deflation shrunk 0.1 percentage point to -0.6%, and CPI inflation swung from -0.2% in October to +0.1% in November.

ECB President Mario Draghi once again urged Ezone governments to enact structural reforms and said the central bank could modify the size of its quantitative stimulus.

The Swiss index of leading economic indicators compiled by KOF slipped 1.7 points to a 2-month low of 102.2 in November, while the UBS consumption indicator for October fell 0.10 points to a 3-month low of 1.49.

British consumer confidence dropped 5 points to a 4-month low of -8 in November. Analysts were looking for a negative reading only half that much.

Portuguese and Belgian GDP posted quarterly increases in 3Q of 0.8% and 0.2%. On-year growth was 1.6% and 1.3%.

In the year to October, producer prices fell 0.5% in Greece and 5.8% in Iceland. 

Danish GDP increased 1.2% in 3Q from a year earlier. Polish GDP on such a basis went up 2.2%.

Two BRIC nations, Brazil and India, announced third quarter GDP statistics. Between 3Q15 and 3Q16, real GDP advanced 7.3% in India, up from 7.1% in 2Q, but fell 2.9% in Brazil, which was not quite as severe as the 3.8% decline in the year to 2Q.

Canadian real GDP grew 3.5% at an annualized rate between 2Q and 3Q. Personal consumption and net exports each accounted for around 1.5 percentage points of that figure, and inventories also supported GDP growth. Monthly GDP went up 0.3% in September and 1.9% from a year earlier, as industrial production climbed 1.2% on month and 2.7% on year.

Canadian producer prices increased 0.7% in October and were 0.8% higher than a year earlier. Raw material prices in Canada advanced 3.3% on month, cutting their 12-month drop to 1.5%.

Building permits in Australia posted declines in October of 12.6% from September’s level and 7.2% on year. Private credit grew 5.3% in the same span. New home sales recorded an 8.5% drop on month in October, its second large decline since July.

New Zealand business sentiment fell 4.0 points in November to 20.5. M3 money growth accelerated in October to 7.1% from around 5% on year in August-September.

COPOM, Brazil’s monetary policy committee, is holding an interest rate-setting meeting today.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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