Market News & Insights
26 May 2017

Temperature Soars While Oil Cools

We may be set for the hottest day of the year, but markets cooled off overnight with investors divulging the news from the OPEC meeting in Vienna. Oil prices slid after OPEC agreed to extend cuts in production for a further nine months, until March 2018. This disappointed investors who had anticipated bigger output cuts here. The worry here now is that once this expiration data expires and OPEC nations return to a policy of ‘pump at will’, do we then see prices return below $30? If so, what implications (if any) will this have on US interest rates?

The news prompted moves away from the risker assets. Stocks in Asia were in the red while in Europe stocks have also lower. It was a different store elsewhere with the UK’s FTSE just coming up shy of record high, while in the US, markets were able shrug off the news, with both the S&P500 and Nasdaq pushing to new record highs once again.

Back to this morning where the pound is immediately on the back foot after a YouGov poll showed a narrowing lead for British Prime Minister Theresa May over her opposition Jeremy Corbyn, ahead of the elections next month. The poll published on Thursday showed that the Labour Party had cut the lead of May’s Conservatives to five points. If you recall, markets were anticipating that the Tories would boost their seat numbers to around 399 seats (from 330), which is well above the 323 majority and giving them a stronger Brexit stance. This slip in the polls however could impact May’s Brexit strategy and ultimately have a negative impact on Britain’s hand in the negotiations. The news saw sterling slide to 1.2862 against the dollar, while against the euro it broke above the .87 level.

Stateside yesterday and apart from Donald pushing the Montenegrin Prime Minister and grinning like a Cheshire cat at the G7, we had unemployment claims released, where we’ve had a figure of 234k from an anticipated 238k. While the recording was a slight improvement, the bigger picture here is it’s the lowest number of jobless claims since 1973.

Despite very little economic growth, employers have indicated that they are choosing to retain staff rather than let people go which has contributed U.S. economy that’s widely expected to accelerate in the second quarter.

Aside from pushing the Montenegrin Prime Minister, Trump will be keen on setting his stall out at the G7 meeting in Italy. While the horrific terror attack in Manchester will clearly take centre stage, the nations gathered do not see eye to eye on trade, immigration and climate change. Trump has shown a disdain for the kind of multilateral trade deals that have been championed by several G7 members in the past including the U.S. Blaming such deals for the growing trade deficits in the U.S., the Trump administration has sought to push back against the forces of globalisation in favor of a nationalist trade policy. Will these bully tactics be to the determent of the US in the end? China,

On the other side, you have the likes of the recently elected French President Macron, who has promised to keep France open to the world in terms of trade and the Canadian Prime Minister Justin Trudeau, where nothing matters more to Canada right now than trade as it faces renegotiation of the North American Free Trade Agreement. Canada has long lobbied for expanded trade and wrapped up its EU trade pact last year. Prime Minister Justin Trudeau’s government has begun to hold it and other recent pacts up as a model for Trump, saying measures such as labor provisions in so-called progressive trade deals could be a tonic for the Americans too.