There is still disagreement on production quotas within OPEC+. Inflationary pressures are easing in the Eurozone

Weekly jobless claims rose by 86,000 to a 2-year high of 1.927 million, indicating a weaker labor market than expectations of 1.865 million. In addition, the October core PCE deflator, the Fed’s preferred measure of inflation, declined to 3.5% y/y from 3.7% y/y in September, which matched expectations and was the slowest rate of increase in 2 years. However, hawkish comments from New York Fed President Williams and San Francisco Fed President Daly pushed bond yields higher and negatively impacted tech stocks as they dampened speculation that the Fed will soon cut interest rates.

Markets rate the probability of a 25 bps rate hike at the next FOMC meeting on December 12-13 at 4% and the probability of a 25 bps rate hike at the next FOMC meeting on January 30-31, 2024 as 0%. Markets also factor in a 47% probability of a 25 bps rate cut at the March 19-20, 2024 FOMC meeting and a more than 100% probability of the same 25 bps rate cut at the April 30-May 1, 2024 FOMC meeting. As recently as a week ago, the probability of a rate cut in May was 57%.

European stocks rose after the Eurozone’s consumer price index rose less than expected, pushing down 10-year German bond yields. A weaker-than-expected Eurozone CPI report for November reinforced expectations that the ECB is done raising interest rates. Eurozone CPI for November fell to 2.4% y/y from 2.9% y/y, better than expectations of 2.7% y/y and the smallest increase in 2 years. Core CPI for November also declined to 3.6% y/y from 4.2% y/y in October, better than expectations of 3.9% y/y. Weakening price pressures indicated that swap markets have priced in a 100% ECB rate cut of 25 bps for the ECB meeting on April 11.

On Thursday, OPEC+ countries agreed to cut oil production by 1.0 million bpd through June 2024. However, crude prices fell on the news as no details were provided on how the cut would be distributed among the organization’s representatives and how Russia’s 300,000 bpd export cut would be factored into the new totals. Delegates said the final details of the new agreement, including national production levels, would be announced by each country separately rather than in the usual OPEC+ communiqué. Investors reacted with disappointment as the rift between Angola (Africa’s second-largest oil producer) and other OPEC+ representatives persists and is a bearish factor, signaling more disputes within. On Thursday, Saudi Arabia said it would maintain its unilateral oil production cut of 1.0 million bpd through June 2024. The move would keep Saudi oil output at around 9 million bpd, the lowest in three years.

Natural gas prices declined for the fifth consecutive session on Thursday. The EIA’s unexpected increase in weekly natural gas inventories on Thursday pressured prices. The EIA reported that natural gas inventories rose by 10 bcf last week versus expectations of a 6 bcf decline. High inventories due to carryover balances from the mild winter of 2022/23 and weak heating demand have led to lower natural gas prices. As of November 26, natural gas storage in Europe is 97% full, above the 5-year seasonal average.

Asian markets were mostly up yesterday. Japan’s Nikkei 225 (JP225) was up by 0.50% for the day, China’s FTSE China A50 (CHA50) lost 0.17%, Hong Kong’s Hang Seng (HK50) added 0.29% on Thursday, and Australia’s ASX 200 (AU200) was positive 0.74%.

Economic news from Japan on Thursday was mixed for the JP225 index. On the bearish side, October retail sales unexpectedly fell by 1.6% m/m, which was weaker than expectations of a 0.4% m/m increase and was the biggest decline in 2 years. In contrast, the consumer confidence index for November unexpectedly rose by 0.4 to 36.1, stronger than expectations of a decline to 35.6. In addition, industrial production for October rose by 1.0% m/m, stronger than expectations of 0.8% m/m and the largest increase in the last 4 months.

In China, Caixin’s manufacturing Purchasing Managers’ Index (PMI) rose to 50.7 in November, beating expectations of 49.3 and sharply improving from the 49.6 seen in the previous month. The reading contradicts the government’s PMI data released on Thursday, which showed a larger-than-expected decline in manufacturing activity. However, the Caixin survey differs from the government survey in its coverage, as it focuses more on small private enterprises, as opposed to the large state-owned enterprises covered by the official survey. Investors typically use both surveys to get a broader picture of the Chinese economy.

USD Index 103.52 +0.76 (+0.74%)