Morning Brief: OPEC, ADP and ECB
Image via World Economic Forum / Flickr; Abdalla Salem El-Badri, Secretary-General, Organization of the Petroleum Exporting Countries (OPEC)
The pace of the economic data picks up steam today with a busy economic calendar. But ahead of today’s highlights, a quick recap from yesterday.
The Japanese yen extended gains leading to USDJPY falling for two consecutive days. The dollar closed at 109.53Yen after a brief test to post a 10-day low at 109.05. Today’s early trading session is seeing the dollar extending its declines and a close below yesterday’s low could see price move steadily to the 107 – 108 region which is a strong support level. The yen strengthened as it was officially confirmed that Japan would be delaying the proposed sales tax hike (for a second time). The implementation of the sales tax hike is now pushed into October 2019. Furthermore, questions on the uncertainty and effective of ‘Abenomics‘ are keeping the markets sour at the moment. The Japanese Nikkei 225 is trading weaker as well.
DBS, in its note earlier today, summarizes as follows: “This is not the first time for the consumption tax hike to be pushed back. The second delay this time may have increased investors’ concerns about economic uncertainties and skepticism about Abenomics. The postponement of the tax hike raises doubts over the sustainability of Japan’s public debt.”
In the US, economic data yesterday was fairly stronger than expected. ISM Manufacturing managed to beat estimates to post a healthy increase, but the dollar failed to capitalize on the positive data. US construction spending declined, and the Fed’s Beige Book showed that the US witnessed a modest – moderate economic growth in the early second quarter. However, AtlantaFed’s GDPNow is estimating that the second quarter GDP growth in the US might have expanded 2.50%. Also, the US auto sales data showed that consumer demand for new cars was easing pushing manufacturers to rely on sales or car rentals.
More on yesterday’s markets here
OPEC Meetings start today in Vienna
Ministers of the OPEC will be meeting in Vienna today for a two-day bi-annual meeting which could set the stage for action later in the year. No major surprises are expected, but at the same time, the markets are prepared for any announcements in regards to production ceilings. The markets are still fresh with the Doha meetings which saw Saudi and Iran failing to see eye to eye. However, since then oil prices have been steadily rising with WTI Crude oil futures trading near the $50 barrel briefly late last month. At today’s OPEC meeting, Saudi Arabia will be represented by the new oil minister Khalid Al-Falih. Also, later today the US department of energy will be releasing the crude oil inventory data. Estimates are for a drawdown in oil inventory by 2.6 million barrels.
US ADP Private Payrolls
Payroll firm, ADP will be releasing the monthly private employment change today at 1215 GMT. Analysts have penciled in a modest increase of 178k in May, up from 156k jobs in April. The ADP report is likely to set the expectations heading into tomorrow’s monthly nonfarm payroll report from the Labor department. Last month’s 156k print in ADP payrolls was followed by the nonfarm payrolls report which showed 160k jobs. While the ADP payrolls data is not an accurate indicator on the NFP, traders will be looking at today’s print to adjust their expectations for Friday.
ECB Meeting – No Change Expected
The European Central Bank will be meeting today for its monetary policy review. No changes are expected on the policy front with the ECB expected to keep its stimulus program unchanged and the minimum bid rate at zero percent. Focus will, therefore, shift to the press conference by Mario Draghi, which starts at 1230PM. The ECB will also be releasing its economic forecasts and expectations are that the ECB could revise the inflation forecasts higher for the first time this year. This could be bullish for the euro. Draghi will also be speaking later in the day at 1400GMT and could keep the euro.
