Sample Category Title

Notes/Observations

OPEC, non-OPEC set for new oil cut, eye longer duration with 9-months likely

UK Q1 GDP (2nd reading) revised lower (QoQ: 0.2% v 0.3% advance reading)

Fed dialed down market's hawkish policy expectations

Overnight:

Asia:

Bank of Korea (BOK) left its Repo Rate unchanged at 1.25% (as expected) for its 11th consecutive hold in the current easing cycle; turns optimistic on growth outlook

BOJ's Deputy Gov Iwata: BoJ will manage exit from QE so there is no sudden spike in yields

Bank of Japan (BOJ) Sakurai: underlying inflation remains moderate, crucial for BoJ to maintain monetary easing. Won't be able to achieve 2% inflation sustainable if policymakers try to forcefully stimulate short term demand-

China Securities Regulatory Commission (CSRC): Considering allowing foreign investors into futures market; Will not allow innovation in futures to bypass regulation

Fitch Analyst Fennell: China's finance and track record underpin A+ sovereign rating

US Navy destroyer conducted navigation operation in the South China Sea, within 12 nautical miles of Mischief Reef, which is claimed by China

Europe:

UK PM May plans to cut short her visit to the G7 meeting in Sicily after the terror threat level was raise din Britain to critical following a suicide bombing in Manchester

UK political parties will resume campaigning on Friday following a 3 day suspension after Manchester Arena bombing earlier in week

Americas:

FOMC May 3rd Minutes: Most participants viewed March soft inflation as transitory; Staff presented phased in balance sheet run-off plan. Agreed details on balance sheet plan should be announced soon; operations should get underway this year. Prudent to wait for more evidence that recent weak economic data were transient to raise rates again

Fed's Kaplan (moderate, voter): Expect rate hikes to be more gradual than once per quarter; Fed should not be in a rush and remove accommodation gradually.

Fed's Evans (dove, voter): Reiterates it's key to try harder to hit inflation goal sooner

Treasury Sec Mnuchin:Urged Congress to pass a clean debt ceiling before the August break; Preference is for congress to pass a clean debt ceiling increase

OMB Director Mulvaney: Tax revenues are coming in slower than expected; may have to move up debt limit date

Economic Data

(ES) Spain Q1 Final GDP Q/Q: 0.8% v 0.8%e; Y/Y: 3.0% v 3.0%e

(PL) Poland Apr Unemployment Rate: 7.7% v 7.7%e v 8.1% prior

(UK) Q1 Preliminary GDP Q/Q: 0.2% v 0.3%e; Y/Y: 2.0% v 2.1%e

(UK) Q1 Preliminary Private Consumption Q/Q: 0.3% v 0.3%e; Government Spending Q/Q: 0.8% v 0.4%e; Gross Fixed Capital Formation Q/Q: +1.2% v -0.2%e; Exports Q/Q: -1.6% v +0.5%e; Imports Q/Q: +2.7% v +0.9%e

(UK) Q1 Preliminary Total Business Investment Q/Q: 0.6% v 0.3%e; Y/Y: +0.8% v -0.9% prior

(UK) Apr BBA Loans for House Purchase: 40.8K v 40.8Ke

(HK) Hong Kong Apr Trade Balance (HKD): -34.1B v -39.2Be; Exports Y/Y: +7.1% v +12.5%e; Imports Y/Y: +7.3% v +13.5%e

Fixed Income Issuance:

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 -0.2% at 3579, FTSE -0.1% at 7507, DAX -0.5% at 12578, CAC-40 -0.2% at 5332, IBEX-35 +0.2% at 10931, FTSE MIB -0.6% at 21233, SMI -0.3% at 9035, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes European indices have reversed earlier gains to trade largely lower across the board, led bu the FTSE MIB and Dax which trade lower by over 0.5%. US indices did close at new record highs with futures continuing course this morning after the FOMC minutes yesterday. In the corporate front Petrofac trades lower by over 25% following a probe by the SFO, and the suspension of its COO. Elsewhere WizzAir is outperforming after strong 2018 guidance, whilst Daily Mail Group trades shapely lower after a decline in earnings. Looking ahead notable US earnings scheduled this morning from Medtronics, Genesco, Dollar Tree

Equities

Consumer discretionary [WizzAir [WIZZ.UK] +8.5% (Earnings, FY18 outlook), Daily Mail & General TST [DMGT.UK] -8.7% (Earnings), Halfords [HFD.UK] +2.2% (Earnings), Henry Boot [BOOT.UK] +5% (Trading update)

Consumer Staples [Tate and Lyle [TATE.UK] -1.7% (earnings)

Industrials: [Qinetiq Grp [QQ.UK] +1.3% (Earnings), Vedanta [VED.UK] +1.9% (Chairman: No tie up with Anglo American)

Financials: [Intermediate Capital Grp [ICP.UK] +9.5% (Earnings)

Energy: [Petrofac [PFC.UK] -33% (SFO investigation, COO suspension), Amec Foster Wheeler [AMFW.UK] -4% (With Petrofac)]

Speakers

Russia Central Bank (CBR) Gov Nabiullina: Russia was in no hurry to replenish FX reserves

China Academy of Social Sciences (CASS) researcher Jin Bei: China GDP growth to slow until 2020 as potential economic growth rate will be lower than 6%

China Defense Ministry urged US to correct wrong behavior regarding disturbing peace and stability in South China Sea (**Note: comments made after a US Navy destroyer conducted navigation operation in the South China Sea, within 12 nautical miles of Mischief Reef, which is claimed by China)

Various OPEC ministers comment ahead of its bi-annual meeting in Vienna:

Saudi Arabia Energy Min Al Falih: OPEC likely to extend cuts for 9-months; could be prolonged further if needed; likely to rule on same level. Many countries had indicated flexibility on cuts. Saw oil inventories at 5-year average in Q1 2018; re-balancing would happen sooner rather than later. Nigeria, Libya exempt from production deal (were exempt at Nov OPEC meeting). US Shale oil production would not derail what OPEC was doing. Saudi Arabia has no plans to expand capacity beyond 12.5M bpd

Kuwait Oil Min Almarzooq: Expected 9-month extension of OPEC/Non-OPEC oil cuts.Did not expect meeting to discuss deeper cuts . Market had already absorbed rise in shale oil production

Iran Oil Min Zanganeh: No objection to 12-month extension; will respect and comply with OPEC decision of either 3,6, 9 or 12 months. Wanted oil prices between $55-60/barrel. Did not have oil in floating storage and was currently exporting 2.1-2.2M bpd

Iraq Oil Min Min Al-Luaibi: Supported all options on output agreement. Supported 9 month extension with same level of cuts; there was a proposal for an extension with deeper cuts. Country's oil production at 4.465M bpd; exports at 3.79M bpd (includes Kirkuk)

UAE Oil Min Mazrouei: Sought a 6-month production cut and not concerned about US shale oil production

Venezuela Oil Min Del Pino: Deal most likely to be extended by 9-months but 6-months is also an option

Ecuador Energy Min Perez: Supported 9-month extension of OPEC deal

Nigeria Oil Min Kachikwu stated that he supported 9-month extension of oil production cuts; OPEC members largely on-board with this view

Currencies

USD remained on the defensive as the Fed dialed down market's hawkish policy expectations. Fed members noted that it was prudent to wait for more evidence that recent weak economic data were transient before raising rates again.

EUR/USD was higher and nearing the mid-1.12 area (just off recent 6-month high) while GBP/USD continue to probe the 1.30 level.

GBP/USD was above the 1.30 level just ahead of Q1 GDP reading and drifted lower afetr the data was revised lower in its 2nd reading.

USD/JPY bucked the trend and was higher as several BOJ officials

Price action in oil was choppy as various OPEC ministers spoke ahead of the bi-annual meeting. WTI crude drops to session lows near $51/barrel after Saudi Oil Min Al-Falih noted that deeper production cuts not needed at this time. WTI was above $52/barrel at 5-week highs before the numerous OPEC ministers spoke

Fixed Income

Bund futures trade at 161.37 up 31 ticks, surging as stocks slide. Gains took out the 161.32 (May 23rd high) resistance level. Further resistance lies near the April 27th high of 162.01 level followed by 163.68. A break of 160.01 support level could see lows target 159.01 followed by 157.50.

Gilt futures trade at 128.82 higher by 29 ticks and approaching last week's high of 128.95 following disappointing UK GDP and BBA loans data. Last week's rally respected both the 129.00 handle and the 129.14 April 18th high. Price is now tentatively above the 128.51 level and finds key support at the 127.52 support level. An acceleration lower could test the 126.74 region. Resistance stands at 129.14 followed by 132.80.

Thursday's liquidity report showed Wednesday's excess liquidity rose to €1.628T a slight gain of €0.8B from €1.6272T prior. Use of the marginal lending facility rose to €186M from €130M prior.

Corporate issuance saw over $2.75B come to market via 2 issues headlined by Home Depot $2B in an 3-part senior unsecured offering and High Grade Pipeline $750M in 7-year notes

Looking Ahead

OPEC bi-annual meeting in Vienna (currently underway)

(EU) NATO Leaders Meet in Brussels

(EU) EU President Tusk and EU's Juncker meet with US President Trump in Brussels

05:30 (ZA) South Africa Apr PPI M/M: 0.5%e v 0.3% prior; Y/Y: 4.9%e v 5.2% prior

05:30 (HU) Hungary Debt Agency (AKK) to sell Bonds (3 tranches)

05:45 (IT) Italy Fin Min Podoan at conference

06:00 (IL) Israel Mar Manufacturing Production M/M: No est v -2.3% prior

06:00 (CZ) Czech Republic to sell 3-month Bills; Avg Yield: % v -1.25% prior

06:00 (RO) Romania to sell 5.95% Mar 2021 Bonds; Yield: % v 2.46% prior; bid-to-cover: x v2.9x prior

06:30 (AU) RBA's Debelle participates on panel in London

07:00 (UR) Ukraine Central Bank Interest Rate Decision: Expected to cut Key Rate by 50bps to 12.50%

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Apr Advance Goods Trade Balance: -$64.5Be v -$64.2B prior (revised from 64.8B)

08:30 (US) Initial Jobless Claims: 238Ke v 232K prior; Continuing Claims: 1.93Me v 1.898M prior

08:30 (US) Apr Preliminary Wholesale Inventories M/M: 0.2%e v 0.2% prior; Retail Inventories M/M: No est v 0.4% prior

08:30 (US) Weekly USDA Net Export Sales

09:00 (RU) Russia Gold and Forex Reserve w/e May 19th: No est v $399.7B prior

09:00 (MX) Mexico Apr Trade Balance: -$1.6Be v -$0.2B prior

09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: Expected to leave Interest Rates unchanged 7.00%

09:30 (BZ) Brazil Apr Total Outstanding Loans (BRL): No est v 3.077T prior; M/M: No est v 0.2% prior; Personal Loan Default Rate: No est v 5.9% prior

10:00 (US) Fed's Brainard (voter, dove) participates on panel

10:00 (MX) Mexico Q1 Current Account Balance: -$6.5Be v -$3.4B prior

10:30 (US) Weekly EIA Natural Gas Inventories

11:00 (US) May Kansas City Fed Manufacturing Activity: 10e v 7 prior

11:00 (BR) Brazil to sell Fixed Rate 2023 and 2027 Bonds

11:00 (BR) Brazil to sell 2017, 2019 and 2020 LTN Bills

12:00 (CA) Canada to sell 5-Year Bonds

13:00 (US) Treasury to sell 7-Year Notes

13:30 (BR) Brazil Apr Central Govt Budget Balance (BRL): +7.3Be v -11.1B prior

• Buy the rumour, sell the fact – Oil hit on cut extension comments;
• GBP tumbles on weakest quarterly UK growth in more than four years;
• US jobless claims and Fed speeches still to come.

US equity markets look likely to test their all-time highs on Thursday, with the S&P 500 on course to open at record levels and the Dow not far behind. The focus this morning has been on oil and UK markets, with OPEC making statements on the proposed oil cut extension and UK growth figures disappointing in the first quarter.

Brent and WTI got crushed earlier as energy ministers from within OPEC suggested that an extension will be agreed and will likely be at the same levels for six or nine months. It's been a classic case of markets buying the rumours and selling the facts. It would appear a nine month extension with the potential for deeper cuts was almost fully priced in so when the statements were made, there was nowhere left for prices to go but lower.

We've seen this kind of action time and time again. Traders buy on anticipation of the deal and when its delivered as expected, they take their profits and run. The unwinding of the positions, probably combined with some speculative selling, is what creates this sudden plunge. Prices have rebounded a little following the initial sell-off but remain below the pre-statement levels. With the Saudi Energy Minister confident that stocks can now fall back to their five year average by the first quarter of next year but open to another extension if needed, it will be interesting to see whether prices stabilise at these levels and remain supported – and if so how long for – or if they'll drift lower again as they did following the previous cut. He did suggest that he doesn't see US shale derailing their plans or believe forecasts that output will rise by one million barrels per day but OPEC has been wrong on this in the past.

Sterling has come under pressure this morning after the ONS confirmed that the UK grew by only 0.2% in the first quarter – 2% from a year earlier – which is the slowest rate of quarterly growth in more than four years. It would appear the economic reliance on the consumer is finally taking its toll with higher prices seen as contributing to the softer activity in the first quarter. With wages now falling in real terms, this doesn't bode well for the coming quarters and while the Brexit vote may have taken a little longer than many expected to harm the economy, it would appear that the initial pain is starting to be felt.

It's also worth noting that the pound was already looking a little unsettled at its highs against the dollar. It would appear we've been seeing something of a reluctant rally over the last month and perhaps the sell-off that we've seen in the pair this morning is a reflection of that. Should the pair break below 1.29, it could signal a sharper downturn in the coming weeks. The weakness in the dollar – with another downturn over the last couple of weeks – is certainly helping to support the pair but with a rate hike likely at the June meeting, I wonder whether this will continue.

Still to come today we've got jobless claims data being released from the US and we'll hear from Lael Brainard and James Bullard from the Federal Reserve.

Today, the highly anticipated meeting between major OPEC and non-OPEC oil producers will take place in Vienna. Recent comments from the oil ministers of Saudi Arabia and Russia suggest they have agreed to extend the November oil-output cut deal until March 2018, an extension of 9 months at the current volume of 1.8 mbpd. Ever since those remarks, many other OPEC oil ministers have expressed their support for a 9-month extension as well. Bearing this in mind, we think that most, if not all, of the good news are probably already priced into oil, evident by the recent surge in prices. As a result, if we only get a 9-month extension, we see further upside in oil as likely being limited. In order for oil prices to rally significantly from current levels, we believe that producers have to deliver something over and above what the market currently expects, namely an extension of a full year and/or deeper cuts in production.

WTI traded somewhat higher yesterday, after it hit support near 50.60 (S1) on Tuesday. During the European morning Thursday, the price looks to be headed for a test of the 52.60 (R1) resistance hurdle. In case the producers deliver a full-year extension or deeper cuts, WTI could surge above 52.60 (R1) and initially aim for the 54.00 (R2) territory. A clear break above that zone could pave the way for the next resistance of 54.80 (R3). On the other hand, a potential disappointment, like an extension of only 6 months, could trigger a pullback in oil prices. In such a case, we expect the bears to seize control and push the price lower towards 50.60 (S1), where a decisive break could set the stage for the next support at 49.90 (S2).

Bank of Canada stands pat, maintains a neutral tone

The BoC kept its policy unchanged yesterday, as was widely expected. The tone of the meeting statement was neutral overall, indicating that although uncertainties continue to cloud the Canadian outlook, the economy's adjustment to lower oil prices is almost complete and recent economic data such as business investment have been encouraging. Perhaps due to the absence of any really concerned comments by policymakers, the Canadian dollar gained on the decision. In case the OPEC and non-OPEC producers deliver something more than the market expects, the currency could come under renewed buying interest.
USD/CAD dipped yesterday from near 1.3540 (R3) following the BoC decision, and then declined even further after the FOMC minutes, to break below the support (now turned into resistance) barrier of 1.3410 (R1). Considering the BoC's neutral outlook, the battered US dollar, and the prospect of a deal that boosts oil prices, we think that this decline could continue. An initial break of the 1.3360 (S1) zone could trigger further downside extensions towards the 1.3310 (S2) support territory.

FOMC minutes: Prudent to wait for evidence that GDP slowdown is transitory

The FOMC minutes from the May policy meeting had a neutral tone overall in our opinion, with every hawkish comment being balanced with a cautious remark. For instance, most participants judged that if economic data came in more or less in line with their expectations, then another rate hike “would soon be appropriate”. However, they also judged it would be prudent to wait for evidence that the recent slowdown in GDP was transitory before taking any further action. The US dollar declined alongside US treasury yields, but interestingly enough, the probability for a June rate hike remained elevated at 83% according to the Fed funds futures. Moving forward, we expect the market to shift its attention to incoming US data as well as Fed speakers. In that respect, Fed Board Governor Brainard's remarks today may be closely followed, for any hints as to whether she will support a hike at the coming meeting.

As for the rest of today's highlights:

During the European day, the UK will release its 2nd estimate of GDP for Q1. The forecast is for the 2nd reading to be in line with the preliminary figure and confirm that economic growth slowed notably from Q4. In such a case, we expect market participants to turn their focus to the other important aspect of the 2nd estimate: business investment. Investment surprisingly declined in Q4, generating concerns that the first real impact of Brexit-related uncertainties had shown up, as firms appeared hesitant to invest in the UK ahead of the impending Brexit negotiations. We expect investors to look at the Q1 print in order to determine whether this was a one-off, or if Brexit jitters have already began to weigh on GDP growth. The consensus is for the investment rate to have rebounded, but only marginally so. Another soft print could enhance the aforementioned concerns and thereby, prove negative for sterling.

Besides Fed Board Governor Lael Brainard, we will also hear from ECB Vice President Vitor Constancio today.

WTI

Support: 50.60 (S1), 49.90 (S2), 48.40 (S3)

Resistance: 52.60 (R1), 54.00 (R2), 55.00 (R3)

USD/CAD

Support: 1.3360 (S1), 1.3310 (S2), 1.3260 (S3)

Resistance: 1.3410 (R1), 1.3460 (R2), 1.3540 (R3)

US oil price dipped to session low at $50.17, falling nearly $2 after Saudi energy minister signaled that OPEC will extend production cut at the same level for another nine months.

Oil recovered quickly after spike lower and regained levels above $51.00 per barrel, however, further negative impact cannot be ruled out as markets seems to be expected more radical action from top oil producers.

In addition, recent strong rallies signal that most action on extended output cut has already been priced in.

Wednesday's close in red after five straight bullish days and probes below broken 100SMA which now acts as strong support (currently at $51.07), with close below the latter could be seen as initial signal of rally's stall.

Also, bearish signal is developing on strongly overbought slow stochastic on daily chart which is turning south and may trigger correction of $43.74/$51.98 rally.

Psychological $50.00 level marks strong support along with cluster of MA supports that lay below (consisting of 10/55 and 200SMA in $49.50/$49.90 zone) which are expected to contain dips and prevent deeper pullback on break lower.

Otherwise, immediate bullish tone is expected to remain intact and keep bullish bias in play for further upside on repeated close above 100SMA.

Res: 51.48, 51.98, 52.62, 53.18
Sup: 51.07, 50.56, 50.17, 49.90

EUR/JPY - 125.56

Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79

Trend: Near term up

New strategy :

Buy at 124.60, Target: 126.50, Stop: 124.00

Position: -
Target:  -
Stop:-

Although the single currency has eased after faltering below resistance at 125.82 and minor consolidation below this level would be seen, reckon downside would be limited to 125.00 and renewed buying interest should emerge around 124.50-60, bring another upmove later, above said resistance at 125.82 would confirm  recent upmove has resumed and extend further gain to 126.20-30 and possibly 126.60-70 but reckon 127.00-10 would hold from here due to near term overbought condition.

In view of this, would not chase this rise here and would be prudent to stand aside for now. Below 124.10-15 would bring retreat to 123.35-40 but reckon downside would be limited to 123.00 and said support at 122.56 should hold, bring another rebound. Only a break below this support would add credence to our view that top has been formed, bring retracement of recent upmove to 122.00-10 and then 121.50-60 but downside should be limited to 121.20-30.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7467

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term down

Original strategy :

Buy at 0.7405, Target: 0.7570, Stop: 0.7345

Position: -
Target:  -
Stop: -

New strategy :

Buy at 0.7405, Target: 0.7570, Stop: 0.7345

Position: -
Target:  -
Stop:-

As aussie has retreated after faltering below indicated resistance at 0.7518, retaining our view that minor consolidation below this level would be seen and pullback to 0.7420-25 cannot be ruled out, however, if our view that low has been formed at 0.7329 is correct, downside should be limited to 0.7400-05 and bring another rebound later, above said resistance at 0.7518 would extend the rise from 0.7329 low to resistance at 0.7556, having said that, a break above there is needed to provide confirmation, bring subsequent rise towards 0.7595-00.

In view of this, we are looking to buy aussie on dips as 0.7400-10 should limit downside and bring another rise. A break of support at 0.7388 would abort and signal top is formed, bring further fall to 0.7360 but said recent low at 0.7329 should remain intact. Only a drop below this support at 0.7329 would abort and signal recent decline has resumed and extend weakness to 0.7295-00 (76.4% retracement of 0.7158-0.7750). 

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

Today's OPEC meeting will determine the direction of oil for the coming months with an extension of the production cut widely expected.

Anticipation is building in the oil market as the meeting of OPEC, and Non-Opec members get underway to discuss the joint production cut expiring at the end of the month. In the spirit of “future guidance,” various members of the grouping have signalled that an extension of six months is a done deal and could be as long as nine months.

Markets are certainly liking what they are hearing with both Brent and WTI up over one percent in Asia trading extending the fearsome bull run of the last week or so. OPEC is also being helped by the Americans for a change, with last nights Crude Inventory number coming in at -4.425 million barrels. Twice as high as the anticipated drop and the seventh drop in a row. Even more pleasing was that the gasoline and distillate inventories did not increase to offset it. America, it seems is consuming petroleum products faster then they are pumping them.

So what surprises could OPEC/Non-OPEC spring on us today? The markets seem rather complacent to my eyes and OPEC has proven it can surprise. Possible outcomes could be…

The meeting dissolves in acrimony with no extension. Unlikely to happen of course but this is OPEC. A worst case scenario which would not likely be positive for oil at all!

A six-month extension to the present deal. The baseline case and with oil having rallied so far so soon on it, this could bring profit taking to the market ahead of the weekend. Going forward as U.S. shale increases, it may not be enough to drain the glut, and both contracts have some serious resistance not too far above present levels.

A nine-month extension seems to be getting increasingly priced into crude. It may be bullish initially but could generate the same scenario as number 2 above.

An extension through to the end of 2018. Would most likely be construed as positive for oil and signals OPEC/Non-OPEC's determination and dedication to removing supply imbalances.

An extension and an increase in the production cut. Very tough to achieve given the disparate group but would certainly give the most bang for its buck. Could likely be very bullish for oil prices as long as everyone complies, but that is another story.
Crude, of course, has continued its march higher from overnight, ahead of today's OPEC meeting.

Brent

Brent spot opened at 53.80 and is trading near its overnight highs of 54.50 with a break through this level targeting 56.50 from a technical perspective. Lying in wait though is the 57.00 level which has capped all rallies in 2017. A daily close above could signal that OPEC has finally got it right. Support is found initially at the 100-day moving average at 53.40 and then 53.00.

WTI

WTI spot opened at and traded 51.00 in early Asia and has traded up to its New York highs at 51.50 before easing 30 cents. A break above 51.50 targets 52.00. A daily close opening a potential of the 54.50 regions, which has capped WTI for all of 2017. Like Brent, a daily close above this level would be a Nirvana moment for OPEC.

Summary

We may be seeing a bit of position reduction and profit taking ahead of the result from Vienna today. The direction of oil is very much in OPEC and Non-OPEC's hands now, but breaking 2017's highs in Brent and WTI may require the grouping to deliver a crude missile of a surprise.

The FOMC released its May meeting minutes last evening stating that the overall economic assessment was little changed. The Fed sees to raise rates once again is 'soon be appropriate'. Markets assume that it signals a rate hike in June. The minutes also signals further tightening is expected if the incoming economic data shows improved economy. The Fed sees the weak economic performance in Q1 as transitory, caused by soft consumer spending and inventory investment.

Fed members considered it prudent to wait for further evidence that recent economic weakness was transitory before hiking rates again. The tone of the comments was less hawkish than expected with an increased potential for the Fed to hike rates again in June and then pause to consider developments. After the release of the minutes, per CME FedWatch tool, the probability for a June rate hike remains unchanged at 83.1%.

The minutes also signals shrinking the Fed's $4.5 trillion balance sheet in holdings of Treasury and mortgage securities later this year, by allowing a gradual maturity, setting a cap and reducing reinvestments.

After the release of the minutes, the dollar index fell from a 3-day high of 97.36, breaking the support line at 97.00, as US Yields moved lower. During the early European session on Thursday the dollar index hit a 2-day low of 96.79 looking to test the support line at 96.70. USD/JPY retreated from the resistance level at 112.00 and rebounded after testing the support line at 111.50.

Yesterday ECB President Draghi focussed on the risks around Euro-zone financial stability and remained optimistic that the central bank's unorthodox policies did not pose a risk. With the fall in USD, EUR/USD rebounded from a 2-day low of 1.1167, touching a 2-day high of 1.1244. Spot gold rebounded from the significant support line at 1250, touching a 2-day high of 1259.49.

US Equities reacted somewhat favourably to the Federal Reserve minutes with hopes that interest rates would not rise sharply with lower yields providing support. The S&P 500 index gained 0.25%. During the early European session on Thursday, the Dow Jones index reached a high of 21101.25 which was last seen on March 2. The S & P 500 index hit a record high of 2412.68.

The initial USD move seems to deviate from the overall message in the minutes, as markets have priced in the expectations on a June rate hike, and the Fed's hawkish stance appears to be less strong.

With WTI trading higher the market witnessed a degree of profit taking. Latest EIA data recorded a 4.43mn barrel decline in inventories for the latest week. OPEC is scheduled to hold a meeting today in Vienna to discuss whether to extend the existing output cut agreement. The consensus is that OPEC will extend the agreement. It is likely that we will not see a surge after OPEC announces an extension as markets have largely priced in the expectations since May 5.

On Wednesday, Brent crude spot hit the highest level of 54.80, last seen on April 19. During early European session on Thursday, WTI spot hit the highest level of 51.96, last seen on April 19.

'We're slowly but surely moving toward the day when the bank might actually consider raising interest rates. I think that's still a long way down the road, but you've got to walk before you run.' - Doug Porter, BMO Capital Markets

As markets expected, the Bank of Canada left its monetary policy unchanged as its meeting on Wednesday, suggesting that economic growth will likely slow in the June quarter. In a dovish statement, the Bank expressed concerns over capacity utilisation and subdued growth, but noted strong consumer spending, the prosperous housing market and solid job growth. Nevertheless, policymakers voted to keep the benchmark Overnight Rate at a record low of 0.50%. Rates are expected to remain unchanged until 2018. Nevertheless, the Canadian Dollar rose shortly after the release, boosted by expectations of an interest rate hike. According to the Central bank, despite the change of mortgage lending rules, the nation's housing market remained on an expansion path. The BoC Governor Stephen Poloz highlighted that the ratio of household debt to income remained at record highs. The Governor also said that the biggest threat to the economy was arising from the United States and Donald Trump's protectionist policies, as about 75% of Canadian exports go to the US.

'If OPEC doesn't hold together on this, I think the market will start to test the low $40s again.' - Rory Johnston, Scotiabank

US crude oil inventories dropped for the seventh consecutive time last week, official figures revealed on Wednesday. The Energy Information Administration reported that US crude stockpiles fell 4.4M barrels in the week ended May 19, following the preceding week's decrease of 1.8M barrels and surpassing expectations for a 2.4M barrel decline. Thus, inventories hit 516.3M barrels, the lowest level since mid-February, suggesting that the OPEC production cut deal began working. The data came out a day before the OPEC meeting in Vienna, Austria. Analysts expect that OPEC and non-OPEC countries will likely extend the deal for six more months. Refinery production climbed 159K barrels per day to 17.281M bpd during the reported week, whereas the refinery utilisation rate advanced 0.1% to 93.5%. The four-week average of crude exports rose 30% to 4.7M bpd last week, compared to the same period a year ago. The EIA also reported that inventories at the Cushing, Oklahoma, dropped 741K barrels last week. Oil prices rose shortly after the releases, with WTI futures hitting $51.88 per barrel, the highest since April 19.