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OPEC Yourself Before You Wreck Yourself

by Stephen Casey | November 29, 2016

– Oil Falls 2% Ahead of OPEC Meeting

– US Dollar Jumps before GDP Nos.

– Draghi Warns on Brexit Fallout

 

Good morning. A very busy slate is poised to kick off shortly as North American trade opens up this Tuesday morning. Oil prices are down by 2 percent as markets await the conclusion of this week’s OPEC meeting in Vienna. There are rumors permeating through the markets today that both Iraq and Iran are balking at any productions cuts. Month-end trade also kicks off today with a number of key US economic data points, highlighted by the second estimate for Q3 GDP growth. The big dollar is on the move higher again, making gains versus the euro, pound and commodity currencies.

The Japanese yen is losing ground again this morning, falling as investors flow back into riskier currencies. On Monday, equities in some markets posted their worst day in over a month on a bit of profit taking. Today, the move into risk is back on with the yen finding more sellers after some disappointing data results. It was revealed that household spending and retail sales missed expectations while industrial production was reported unchanged over the previous month. It was a very quiet session for much of Asia as markets look ahead to this morning’s releases and any news concerning OPEC.

Europe was also very quiet as mostly second tier data littered the session. November business confidence and sentiment numbers did not show any significant changes, with a little more than one week before the next ECB meeting. ECB President Mario Draghi has been in the news this week though, speaking to members of European Parliament on Monday and quoted in the FT overnight. Mr. Draghi warned that the it will be the UK “first and foremost” that will bear the costs of the Brexit and urged British lawmakers to unveil their plans as soon as possible to squash any uncertainty. There is some belief in the market the ECB will extend QE following the election of Donald Trump – the committee meets again on December 8th.

As North American trade kicks off, the big dollar is once again the big winner following Monday’s brief slide. It was just reported the American economy actually grew at 3.2% annual rate, boosted by consumer spending. The number was originally reported as +2.9% growth but this morning’s revision higher shows economic growth in the US actually is moving at the fastest pace in over two years. The Trump Effect? The big dollar is making gains in the minutes following the release, moving higher against the yen and euro notably. Later this morning, we get a look at housing data in the US while this week’s economic highlight remains Friday’s November jobs report. Fed members Dudley and Powell will be speaking later as well, which could offer some insight into the committee’s mindset as we move closer to the December meeting.

Finally, turning to Canada, we could say it is all about OPEC at the moment. The loonie has slipped into a very tight range over the last six to seven sessions as most other commodity currencies (AUD, NOK, NZD) wait for any clarity on the OPEC meeting. As previously reported, feelings are mixed among the participating nations on whether a concrete deal will materialize. Nations are hoping to stabilize prices which had experienced a very volatile twelve months. The current proposal would trim production by 1.2 million barrels from October levels. As we publish, crude prices have dipped 2% and USD/CAD has jumped by 0.5% off Monday’s lows. Canadian Q3 GDP figures will be released on Wednesday, before Friday’s November employment report.

 

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