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The Art Of The Deal

by Stephen Casey | December 1, 2016

– Crude Prices Leap Higher on OPEC Deal

– EU Unemployment Hits 7-Year Low

– China Factory Output Boosts Risk

 

Good morning. President-elect Donald Trump wrote in his book The Art of the Deal, “the worst of times often create the best opportunities to make good deals.” And perhaps that is what OPEC was presented with this week –the worst of times – which finally allowed for the opportunity for member nations to agree on a production cut to stabilize falling crude prices. Oil prices have had a great week in light of yesterday’s announcement but still remain more than 55% below the 2013 high prices – more details below. It’s a very busy week with loads of data to digest, with key releases overnight from Asia and Europe clearing the path before tomorrow’s US November jobs report.

Chinese shares trading in Hong Kong hit a two-month high on Thursday after it was reported the country’s official factory measure climbed higher in November. Non-manufacturing PMI was also better than expected, which nudged risk appetite higher and sent the yen lower again as investors flushed into higher yielding assets. The USD/JPY rate rose to its best level since last March before the release of Chinese data prompted a “sell the fact” recovery. Despite yesterday’s strong moves in commodities, both the Australia and New Zealand dollars held a tight range overnight, even as NZ export prices dropped 2.8% over last quarter, the fourth straight quarterly decline. The euro is up a bit this morning as it was reported EU unemployment dropped lower to 9.8%, its lowest mark in more than seven years. Sterling jumped by more than 1% even as UK manufacturing growth misses forecasts with some prominent analysts pointing in inflationary pressures. Global markets continue to digest this week’s OPEC deal though, and what it means for the future.

A lot of individuals are pointing to Saudi Arabia as the crucial “dealmakers” at this week’s Vienna summit. The Organization of the Petroleum Exporting Countries agreed to cut production by 1.2 million barrels, which had been expected, despite some last minute jaw-boning from member countries Iran and Iraq. In addition to the cuts, it was also announced that non-OPEC countries would be cutting about 600k barrels in production over time. There remains a lot of work for OPEC but yesterday’s announced deal is a good start after what many see as a difficult year. In 2017, Saudi Aramco is expected to go forward with an initial public offering so there is a lot riding on this week’s meeting and stabilizing oil prices. As earlier reported, WTI crude prices bottomed out below $30-per-barrel in 2016, falling from its 2013 high around $115-per-barrel.

The big dollar took another big step on Wednesday, jumping after a very strong ADP Employment figure. It was reported that private businesses in the US hired 216k workers in November compared to a revised figure of 119k for October. This figure was much better than the 165k expected. The big dollar exploded higher shortly after this figure, but it was also boosted by some encouraging words from incoming Treasury Secretary Steven Mnuchin. Mr. Mnuchin, a former Goldman banker, was very harsh when speaking to CNBC on the Dodd-Frank Laws and its future in the Trump Administration. This morning, it was reported that 268,000 Americans filed first-time unemployment claims for the week ending November 25th. Later this morning, ISM will be releasing its manufacturing PMI for November – 52.1 is forecast. Tomorrow, a very busy week concludes with the November jobs report, which is likely the final key piece of data before the last Fed meeting of this year.

The Canadian dollar found it difficult on Wednesday to nudge higher despite the announcement of the OPEC deal. While oil prices exploded higher by as much as 9% at one point, the loonie receded in the face of the US dollar strength throughout the session. Overnight, the loonie finally caught up with crude prices and moved off its most recent lows. Canadian dollar traders should keep one eye on commodities markets today and another eye on general risk appetite. Stocks in the US hit yet another all-time high on Wednesday, which could generate some positive momentum for the loonie – which is an attractive buy for those seeking risk. Tomorrow, the employment report is expected to show Canada lost 3.4k jobs in November following a very strong 43.9k increase the previous month.

Good luck and have a great Thursday.

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