Brent hits $ 70, OPEC meeting, strong Eurozone PMI data

By Peter Nurse – Brent surpasses $ 70 a barrel ahead of last OPEC meeting, stocks continue to climb, British pound shows more strength and European economic indicators point to a recovery. Here is what moves the markets on Tuesday June 1st.

1. Brent exceeds $ 70 before OPEC meeting

Crude oil prices were up sharply on Tuesday, with the international benchmark Brent surpassing $ 70 a barrel, amid optimism about the outlook for demand growth as the global economy recovers ahead of a meeting of the main producers.

At 6:30 a.m. ET, U.S. crude was up 3% to $ 68.28 a barrel, while Brent was up 2.3% to $ 70.88, hitting the highest intraday price since 8 March.

May of China factory activity has grown at the fastest rate in 2021 so far, and Europe has quickly followed suit, with Manufacturing activity in the euro zone expanding at a record pace in May (see below), suggesting that the economic recovery among the world’s largest oil consumers was on track.

Additionally, the driving season in the United States began over Memorial Day weekend, with U.S. gasoline demand on Sunday rising 9.6% above the average of the previous four Sundays, the highest Sunday demand since summer 2019, according to tracking company GasBuddy.

The Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC +, is due to meet later today. The cartel is generally expected to continue to gradually ease fuel supply restrictions as planned over the next two months, especially after one of its committees found that the oil glut accumulated during the pandemic had almost disappeared and that stocks would decline rapidly during the second. half of the year.

OPEC + decided in April to return 2.1 million barrels per day of supply to the market from May to July, and the group’s joint technical committee predicted that stocks will decrease by at least 2 million barrels per day. from September to December.

The only fly in the ointment is a possible increase in Iranian production, as the Persian Gulf country and world powers continue to negotiate on the steps Tehran needs to take regarding its nuclear activities to return to full compliance with the 2015 nuclear pact. .

“The market will also be looking for clues from the group on what it might do with the offer after July. Our track record also shows that the group has the option of increasing production later this year, despite the potential for additional Iranian supply, ”ING analysts said in a research note.

2. Stocks should start the new month positively

US stocks are expected to open higher on Tuesday, starting the new month optimistically as the global economic recovery strengthens.

As of 6:30 a.m. ET, Dow Jones futures were up 170 points, or 0.5%, just below 34,700, S&P 500 futures were 0.4% higher, and contracts futures on Nasdaq 100 climbed 0.4%.

The blue-chip Dow Jones Industrial Average gained just under 2% in May, while the broad-based S&P 500 rose 0.6%, to mark its fourth consecutive positive month. The high-tech NASDAQ Composite gained just over 2% last week to post its best weekly performance since April, but it actually fell 1.5% in May, breaking a 6-month winning streak.

In Europe, the DAX in Germany climbed to an all-time high, while the CAC 40 in Paris hit a 52-week high, as did the broad-based Stoxx 600 index.

Confidence grows in the strength of the global economic improvement, aided by unemployment benefit claims in the United States, the world’s largest economy, falling to a new pandemic low last week.

This puts on Friday employment report for the month of May in high view, as investors expect it to show that the unexpected weakness seen in April was one-time, when only 266,000 jobs were created, well below the expected million.

The economy is expected to have created 650,000 new jobs in May, but the economy is still more than 8 million jobs below what it was before the pandemic.

The quarterly earnings season is largely over, but Zoom Video Communications (NASDAQ: ZM) and Hewlett Packard Enterprise (NYSE: HPE) are expected to release results after the bell.

3. Deadline of the ISM Manufacturing PMI

While Friday’s May Jobs Report will be the main economic indicator released this week, and may well set the market tone for June, May ISM Manufacturing PMI the exit, scheduled for 10:00 a.m.ET (3:00 p.m. GMT) will also be considered very carefully.

While the job recovery is crucial in determining Fed policy, markets have also been rocked by recent jumps in the central bank’s other mandate – inflation.

Friday, Basic PCE climbed to an annual figure of 3.1% in April, well above the Fed’s nominal target of 2%, and this follows the consumer price at 4.2% the week before.

Thus, while the overall PMI figure and the employment component will undoubtedly be studied, the focus could be more on the prices paid component. That figure stood at 89.6 in April, a record high and significantly higher than previous highs of the past decade. It is expected to hit a similar figure later on Tuesday, but it has also exceeded expectations in the past 13 months.

4. The European manufacturing sector is rebounding

Europe may have been hit hard by the Covid-19 pandemic, not helped by the slow ramp-up of its vaccination program, but the latest data suggests the region’s recovery is well underway.

Eurozone manufacturing activity grew at a record pace in May, as the final IHS Markit Manufacturing Purchasing Managers Index rose to 63.1 in May against 62.9 in April, above an initial estimate of 62.8 “flash” and the highest reading since the start of the survey in June 1997.

Germany’s PMI for manufacturing, which accounts for about a fifth of the economy, hit 64.4, below the March high of 66.6, but up from a “flash” reading of 64.0, while French equivalent rose to 59.4 from 58.9 in April, reaching the highest level since September 2000.

The disruption caused by the global coronavirus pandemic still has a huge impact on supply chains, and the input price index climbed to 87.1 from 82.2 in April, by far the highest reading. never recorded high.

Nonetheless, these inflationary pressures are unlikely to hold the attention of policymakers at the European Central Bank, as they could at the Federal Reserve, as inflation levels are still far from their target despite years of ultra-monetary policy. -flexible.

Adding to the good news, german unemployment fell more than expected in May, falling by 15,000 as companies hired more staff in light of a recovery in Europe’s largest economy aided by an easing of lockdowns.

5. The British pound hits its highest level in three years

The pound is in demand now, after years of being the unloved child of currencies, as traders bet the impressive rollout of the Covid-19 vaccine in the UK will lead to a healthy and rapid economic recovery.

A deluge of new orders contributed to a record increase in UK manufacturing activity last month, with the IHS Markit / CIPS Manufacturing PMI rising to 65.6 in May from 60.9 in April. the highest level since the start of the survey in 1992.

The Bank of England said last month that the world’s fifth-largest economy is on track to grow 7.25% in 2021, its fastest since World War II, after contracting nearly 10% last year.

At 6:30 a.m. ET (10:30 a.m. GMT), GBP / USD traded at 1.4188, slightly below the high of 1.4247 reached earlier in the session, its highest level since April 2018.

The drop from the peak comes after calls to postpone the end of Covid restrictions in England to June 21 amid warnings of a third wave, Professor Adam Finn, a scientist advising the government, saying the success of the program UK vaccination doesn’t mean the battle with Covid is over.

That said, while the discovery of a highly transmissible variant of the virus originating in India poses a risk, Prime Minister Boris Johnson said there was no conclusive reason to delay easing the lockdown.

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