April 3, 2023

“The recent surprise decision by OPEC+ to reduce oil output has caused an increase in oil prices and raised concerns about inflation, leading to a rise in the value of the US Dollar and stronger US Treasury yields. The countries involved in OPEC+, including Saudi Arabia, Russia, and the United Arab Emirates, have agreed to cut oil production by approximately 1.16 million barrels per day from May 2021 until the end of 2023. Attention is now turning to the release of the US ISM PMI for March and US construction spending for February, which will be announced later today.”

Sam Cornford, Partner – Head of Trading

 

Main Headlines

Oil prices surged this morning, with Brent crude trading above $84 a barrel, up by more than 5%. The jump in prices came after Saudi Arabia, Iraq, and several Gulf states announced on Sunday that they would be cutting oil output by more than one million barrels per day. Russia also said it will extend its half-a-million-barrel-per-day cut until the end of the year. BP and Shell’s share prices also rose, both climbing more than 4%.

The British public’s inflation expectations eased in March, according to a survey by market research company YouGov published by US bank Citi. The survey revealed that public expectations for inflation in the next 12 months dropped to 5.4%, down from 5.6% in February, while expectations for the longer term slipped to 3.7% from 3.8%. Citi noted that the figures confirmed the continued threat of inflation and pointed to shortages in staple foods as an example.

 

GBP

Sterling is weaker than most major currencies in the early morning trade. Teachers in England have rejected a pay offer from the British government aimed at ending disruptive strikes, according to the National Education Union. The union said 98% of teachers who voted in the ballot followed its advice to reject the offer of a one-off payment of £1,000 and an average pay rise of 4.5% in the next financial year. The union has announced two further days of strikes on April 27 and May 2.

 

EUR

Euro is stronger against sterling and weaker against the dollar this morning. Eurozone’s annual inflation rate dropped sharply in March, according to Eurostat, as falling energy prices eased the cost of living in the 20 countries that use the single currency. The headline inflation rate fell from 8.5% in February to 6.9% this month, mainly due to the lack of a repeat of the sharp increase in gas prices after Russia’s invasion of Ukraine. Annual energy inflation dropped from 13.7% to -0.9%.

 

USD

The dollar is well bid against most major currencies overnight. Fears over inflation resurfaced, causing the US dollar to rise, after major oil producers unexpectedly announced further production cuts. The move by OPEC and its allies, known as OPEC+, led traders to bet that the Federal Reserve may need to increase interest rates at its next meeting. Meanwhile, European markets were mixed, with the Stoxx 600 index up 0.2% as oil and gas stocks led gains, while travel and leisure saw a 0.8% downturn.

 

Markets

European markets had a mixed performance this morning, as investors focused on the oil markets following a surprise production cut by the OPEC+ alliance. The pan-European Stoxx 600 index rose by 0.2% at 9 a.m. London time, with sectors and major bourses experiencing minor gains and losses. Oil and gas stocks saw the biggest gains, rising by 3.7%, while travel and leisure stocks experienced a slight decline of 0.8%. Energy giants BP and Shell’s share prices both rose by over 4%.

 

Main Economic Data/Central Banks/Government (All Times CET)

8:30 a.m.: Sweden March Manufacturing PMI
9:00 a.m: Turkey March CPI
10:00 a.m.: Euro-Area March Manufacturing PMI
10:00 a.m.: Norway March Manufacturing PMI
10:30 a.m.: UK March Manufacturing PMI
12:00 p.m.: ECB’s Simkus speaks
2:00 p.m.: ECB’s Vujcic speaks
3:45 p.m.: US March Manufacturing PMI
4:00 p.m.: US Feb. Construction Spending, March ISM Manufacturing
Bank of Israel rate decision

 

Corporate Events

HSBC CEO Quinn, Chairman Tucker meet Hong Kong shareholders

 

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