Tue, May 18, 2021 @ 12:01 GMT
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Sunset Market Commentary


The OPEC+ meeting features high on today’s agenda. Saudi Energy Minister Bin Salman said in the run-up to the meeting that OPEC’s cautious approach in March has been proven right. The cartel kept mutual and individual (Saudi Arabia) output curbs in place because of the uncertain path of the recovery. OPEC+ is generally expected to hold this line despite outside and inside pressure. The US stressed the importance of affordable energy while Russia will probably continue playing free-rider, obtaining another small production hike. Brent crude traded volatile between $62.5/b and $64.5/b. Overall we assume OPEC+ to continue to err on the side of caution, putting a strong bottom below oil prices (low $60/b support area).

Oil market volatility didn’t spill to other markets. Risk sentiment on (European) stock markets is still positive with main indices gaining around 0.5% and the EuroStoxx 50 closing in on the psychologic 4k mark for the first time since January 2008. US stock markets open with gains of up to 1.5% (Nasdaq). The S&P 500 leads the example for the EuroStoxx, by taking out the 4k mark. Positive risk vibes stand apart from dynamics on bond and FX markets. A correction higher in mainly US Treasuries deprives the dollar of some real yield support and causes a modest correction lower in the greenback. The move occurs as traders & investors square some positions going into the long Easter weekend. Many European and US markets are (partially) closed. US weekly jobless claims unexpectedly bounced off pre-pandemic low (719k from 658k), but the market focus in on the US manufacturing ISM (see headline) and tomorrow’s payrolls. The US yield curve starts the new quarter with a bull flattening move which sends yields 0.1 bp (2-yr) to 4.6 bps (30-yr) lower. German yields fall by up to 3.1 bps with the belly of the curve outperforming the wings. EUR/USD currently changes hands around 1.1760 compared to an open near 1.1725. The trade-weighted greenback declines from around 93.30 to the 93 big figure. The euro’s rebound remains nearly non-existing as shown by EUR/GBP’s stabilization in the low 0.85 area.

News Headlines

Dutch opposition parties tabled a no-confidence motion in PM Rutte after notes from coalition talks given to parliament this week showed Rutte had been discussing a position “elsewhere” for Omtzigt, a critic of the PM’s previous cabinet. Rutte earlier denied doing that. His VVD party was the clear winner of elections held on March 17. Losing the vote of confidence would weaken Rutte’s position as VVD leader and would delay the formation of a new coalition.

The Turkish lira is one of the EM outperformers today, gaining about 1.5% against the euro to a still-weak 9.59.  Kavcioglu in his first presentation to domestic investors delivered a message of continuity, according to a person with knowledge of the call. The new CBRT governor said inflation targeting remains intact and high inflation expectations require a tight policy, breaking with his written views before he was appointed as head of the central bank. Last week, Kavcioglu also said a rate cut isn’t a given on the April policy meeting.

US ISM manufacturing confidence came at a stronger-than-expected 64.7 in March vs. 60.8 last month. That’s the highest level since the early eighties, driven by a continued surge in new order inflow (68 vs. 64.8). The export order book also keeps expanding, though at a slightly slower pace (54.5 vs. 57.2). Employment (59.6) jumped to the highest level since 2011 while supplier deliveries surpassed their pandemic peak to levels not seen since the seventies (76.6). Pricing pressures stabilized near their decade high (85.6). US markets reacted muted.

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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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