Market movers today
OPEC+ is meeting today, where a boost to production targets will be in focus following indications yesterday that Saudi Arabia is prepared to increase its oil output earlier than expected.
The US ADP private sector employment report will be released today ahead of the May Jobs Report on Friday. Despite the weaker ISM manufacturing employment index released yesterday, continuing high labour demand points towards another month of strong employment gains. In addition, US factory orders and the Euro Area PPI will be released for April.
From central banks, ECB’s Villeroy and Fed’s Mester will be on the wires today.
The 60 second overview
Generally strong US data: US ISM manufacturing rose with new orders moving higher. However, the employment index fell below 50, e.g. intro contractionary territory. At the same time prices paid by companies remain extremely high. JOLTS data on job openings were slightly lower in April but remains at record-high levels, pointing to very high labour demand, clearly outpacing labour supply. These data reaffirm the pressure on the Fed to tighten monetary policies to rein in inflation pressures.
Chinese PMIs rebound in May: Both the official and private versions of PMI rebounded in May. The official PMI manufacturing saw the biggest rebound from 47.4 to 49.6, while the private version increased from 46.0 to 48.1. The employment indices were very weak, which will be a big concern for Beijing but they have already responded by clearly stepping up stimulus. With the lockdown ending by the end of May, we expect a further increase in PMI’s in June but it is mainly an effect of the economy fully reopening. The economy should also be supported by the increased stimulus but to what extent it feeds into higher GDP growth will depend on how China manages future Covid outbreaks.
The oil price falls following report that Saudi Arabia will boost production earlier than expected: Oil briefly fell below USD113 a barrel (about 3% drop), but later this morning recovered somewhat following a report that Saudi Arabia is ready to pump more should Russian output decline substantially due to increasing sanctions over its invasion of Ukraine. More concretely, Saudi Arabia and some of the other OPEC+ members are contemplating bringing forward supply increases scheduled for September to July and August, the report said according to a Bloomberg story. Yesterday, a report also emerged that US president Joe Biden is likely to visit Saudi Arabia later this month as part of an international trip for NATO and Group of Seven meetings, as US gas prices are record high.
FI: Sour risk sentiment dominated markets yesterday, with spread widening across the EGB space as curves bear steepened. With Holzmann saying 50bp is clearly needed following the high inflation print and the 50bp rate hike from the BoC, Bunds touch 1.18% yesterday.
FX: Oil markets are in focus as OPEC+ meeting is set to start Thursday. For EUR/USD, increased production would be positive
Credit: Yesterday, credit markets had a mixed session and concluded in a mild risk-off mode. Two European deals were postponed due to the volatile market. CDS indices were both wider with iTraxx Main 1.8bp higher at 89.3bp, while Xover was 8.5bp higher at 446bp.