OPEC+ plans deep oil cuts

written on October 5, 2022

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

US equities rallied for a second day amid a host of events and data, including a smaller-than-expected rate hike from the Reserve Bank of Australia (RBA). The Dow Jones Industrial Average jumped 2.8%, the S&P 500 Index climbed 3.1%, and the Nasdaq Composite soared 3.3%. Shares in Europe posted widespread gains as well, with the Euro Stoxx 50 Index rallying by over 4%.

Summary

  • Asian shares largely rose this morning, with the Hang Seng surging over 5% as trading resumed from a holiday. In the meantime, the ASX in Australia hit a 2-week high on a dovish RBA rate hike. The Kospi in South Korea was muted, as inflation was little changed. Markets in China remain closed for the Golden Week holiday. 
  • Equity markets on both sides of the Atlantic are set to take a breather as traders assess this week’s global equity rally and the prospect of slower central bank tightening. 
  • Oil prices were lower this morning after gaining as much as 3% in yesterday’s previous session ahead of a meeting of OPEC+ producers to discuss a big output cut in what energy executives and analysts see as a tightly supplied market. The cartel is reportedly considering reducing output by as much as 2 million barrels per day, which is double the volume previously flagged and would be the biggest production cut since the height of Covid-19 lockdowns. 
  • Treasury yields ended Tuesday’s session lower, with the yield on the 2-year note declining 3 basis points (bps) to 4.08%, the yield on the 10-year note down 4 bps to 3.61%, and the 30-year bond rate decreasing 2 bps to 3.69%. 
  • In economic news, US factory orders for August were unchanged as expected, the final reads on durable goods orders remained at the previously reported 0.2% month-over-month decrease for August, capital spending data was upwardly adjusted, and the Job Opening and Labour Turnover Survey, a measure of unmet demand for labour, fell more than forecasted. 
  • In European economic news, the Eurozone’s Producer Price Index (PPI) hit a fresh record high of a 43.3% year-over-year rise in August, slightly above the 43.2% estimate, and noticeably higher than the prior month’s upwardly revised 38.0% growth rate. On a month-over-month basis, PPI rose 5.0% as expected, above July’s 4.0% gain. 
  • HSBC is considering selling part or 100% of its equity stake in HSBC Bank Canada, according to various media reports, as it looks to beef up returns as demanded by its largest shareholder. No decisions have been made regarding the potential sale yet, as the bank is currently reviewing its options, the reports say. 
  • Rivian Automotive announced that its Q3 production jumped 67% versus the prior quarter. The electric vehicle automotive technology company produced over 7,000 vehicles in Q3, its highest quarterly amount, and confirmed that it remains on track to achieve its production goal for FY 22.   
  • After being halted for most of yesterday’s session, shares of Twitter resumed trading and jumped on reports that Elon Musk sent a letter to the social media’s Board stating that he plans to go forth with his original proposal to purchase the company at $54.20 per share, a deal that could happen as soon as Friday. 

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Life’s full of mysteries. Your money shouldn’t be one of them.