Swissquote: Markets calm ahead of ADP & OPEC

1 september 2021

By Ipek Ozkardeskaya, Senior Analyst, Swissquote

Big news of the day is the S&P500 and Nasdaq didn’t renew record yesterday. But the US equities still recorded their seventh straight monthly advance in August, which is the strongest winning streak since January 2018, and the S&P500 beat its 53^rd record at Monday’s close: not bad at all given that we don’t only have good news on the wire.

Corporate results are strong, but the Covid crisis is not over, the world and the US is dealing with the new delta variant, global inflation spikes, there is a worsening chip and other material shortages which will at some point affect companies’ businesses and the high inflation is now driving the Federal Reserve (Fed) toward the exit of the cheap money era. Add that to the tragedy in Afghanistan, storms and forest fires: the world is not doing well. 

But the markets are on path for more gains. Nobody can tell how healthy the actual trend is, where it will end, or how it will end. It is sure that we may well see a 10 to 20% drop in equity prices from the actual levels, and there would be plenty of reason to justify such move. But for now, the overall market holds on to its gains and no one dares saying ‘the king is naked’. 

Activity in DAX and FTSE futures hint at a positive start in Europe, as US index futures are in the green ahead of the ADP data release. 

The US is expected to have added some 613K private jobs in August. That’s more than the 330K added a month earlier. But remember, we had a big miss on the ADP front last month, and that didn’t prevent the NFP from printing a surprise strong figure near a million job additions. Therefore, the data will be taken with a pinch of salt. Still, a softer than expected figure could encourage some more profit taking across the US equities, while a good figure could send the indices to record highs, yet again.  

And in all cases, the bulls will probably read what they want to read and hear what they want to hear in data. And even if it’s not the case, they will probably rapidly get over any unpleasant news to carry the rally higher, because a misstep could have dramatic consequences. 

In commodities, gold consolidates above the $1800 per oz as US crude is still knocking at the door of the $70pb. Oil bulls could find an opportunity to drill above the $70pb today on the back of OPEC announcement today. 

OPEC is expected to stick to the production revival plan, as even with OPEC adding 400’000 barrels each day to the end of this year, the fuel stockpiles will decline by more than 800’000 barrels in average. That’s good news for the oil bulls. However, the market will get back to surplus starting from 2022 and remain oversupplied through next year. So that to me is a strong hint that we don’t have much upside potential above the $70pb in US crude, unless we see a surprise action taken by OPEC one of these days. But probably not today.

OPEC is widely expected to maintain its output policy unchanged this month, so that’s 400K more barrels per day for the next several months. But Saudis already warned that OPEC could well pause or reverse their unwinding of output curbs in the coming year, but it may not be a smooth action, as many other members may not agree to return to output restrictive regime so soon. So, I still believe that $75/78 area should act as a solid ceiling to any further rally in oil prices.