London Capital Group: Risk rally after Trump-Xi agreed to resume trade talks, OPEC+ meets
London Capital Group: Risk rally after Trump-Xi agreed to resume trade talks, OPEC+ meets
Trump and Xi gave investors what they wanted at the G20 meeting in Osaka this Saturday: hope. The two leaders agreed to resume the trade talks that have halted in May. The US decided to hold off on the new round of tariffs on some $300 billion additional Chinese goods and even scale back restrictions on Huawei - the US companies could again do business with the Chinese tech giant. A deal is not sealed just yet, but the two countries showed mutual willpower to end the deadlock and move on with the talks.
OPEC+ could extend production cuts to 1Q, 2020
OPEC and its allies meet today and tomorrow to discuss a further extension of production cuts. OPEC+ is expected to carry on with its low production regime at least until the first quarter of 2020 to cope with a slower global demand and rising US shale production. The two biggest producers, Saudi Arabia and Russia agreed on further cuts at the G20 meeting on Saturday and OPEC Secretary-General Mohammad Barkindo said that a longer horizon would give a stronger certainty to the market and that most of the forecasts are ‘shifting toward 2020’. OPEC will certainly do what the market demands to support the oil prices. Hence, an extension of the production cuts for another six-to-nine months seems plausible.
Speaking of the US’ shale production, a recent EIA report showed that the US net oil exports turned positive on week to June 21. This was the third time that this happened since Washington removed ban on exports in 2015. Though a week’s data is not enough to jump on a conclusion regarding the US’ oil independence, there is a visible positive trend in the oil import-export balance in favour of the US.
WTI crude tests the $60 a barrel, as Brent crude rebounded past $66 after having shortly dipped to $65 on Friday. We note that the expectations of further OPEC production cuts are mostly factored in the actual oil prices. Therefore, the OPEC meeting may not spur a significant rally in oil prices.
June final manufacturing PMI data due today
The final June manufacturing PMI data in the Eurozone, the UK and the US will likely bring no surprise on the table on Monday. But the ISM index may hint at a slower expansion in the US manufacturing in June. The US construction spending may have stalled in May for the second consecutive month as well. But the markets are fully confident that the Federal Reserve (Fed) will lower the interest rates in July to give support to the economy. Unless a very bad surprise, the weak economic data will unlikely ruin the positive mood in the market at the start of this week.