The outcome of the much-anticipated OPEC+ meeting has created a splash in the oil market, if not a wave. Saudi Arabia has backed up their words with actions by going it alone and extending their supply cuts, however with other members not on board with turning off some of the production taps (so to speak), the current push higher in the oil price might be short-lived.
The unilateral action by the Saudis behind the price jump in oil today pales in comparison to the spike seen after the previous cuts were announced in early April.
And while the new production cuts from Saudi Arabia are currently for July only, should prices continue to face selling pressure on demand concerns I think we could see these latest cuts have a longer ‘shelf life’ than is currently scheduled.
During Asian trading hours on Monday, the oil price had moved 1% higher.
Gold on the backfoot
Gold has started the week on the backfoot, with both the USD and US treasury yields being well supported in the wake of Friday’s bumper jobs data. With the forecast-beating NFP result (339k vs 190k expected) propping up the greenback, yields and risk-sentiment, gold has lost some of its lustre. A strong USD combined with increasing risk-appetite has created some unfavourable trading conditions for the gold price.
Aussie dollar holds its ground
Elsewhere, the AUDUSD rate is holding above the 0.66 level. Better Chinese data today (Caixin Services PMI coming in at 57.1 vs 56.4 previously) has added to the broadly upbeat trading conditions across markets today. After the particularly high CPI print (last week) it would not surprise to see the Australian central banks pull the trigger on a 25bp rise on Tuesday.
The RBA has demonstrated in the past that they are not shy when it comes to hiking rates and surprising the market, and we could see another episode of an aggressive move on rates again this week.
With the debt-ceiling deal now done and dusted, market attention will turn to the FOMC decision next week. US macro indicators between now and then will be seen through the prism of how it could affect the outcome of the June decision on rates.
Market commentary and analysis from Tim Waterer, chief market analyst at KCM Trade
