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Week Ahead: Markets bet on Fed rate cut
Welcome to your guide to the week ahead in the markets. Federal Reserve, Bank of England and Bank of Japan policy meetings ahead.
Markets bank on Fed cut
Equity markets have recovered from the August doldrums to push higher, with the S&P 500 hitting 3,000 again. All eyes will be on the Fed this week as it’s expected to cut rates – the question will be how many more cuts should the market bank on? Market pricing suggests a 90% chance of a cut, with a roughly 70% of at least another by the end of the year. The FOMC decision will be announced at 18:00 (GMT) on Wednesday.
Bank of England to stand pat
Wages are rising at 4% and inflation is on target at 2% – perfect conditions for the Bank of England to raise rates. But the uncertainty over Brexit and signs of a slowdown in GDP growth are likely to leave policymakers standing pat for the time being. The Monetary Policy Committee decision is due at 11:00 (GMT) on Thursday.
Anything from Bank of Japan?
The Bank of Japan is also in action Thursday, with markets anticipating no change to its ultra-loose monetary policy. In fact, governor Haruhiko Kuroda said recently that cutting rates deeper into negative territory is among its policy options. Meanwhile, inflation remains stubbornly low, sinking in July to its weakest level in two years.
Kingfisher and Next earnings
Results from Kingfisher and Next are among the main events on the corporate diary. For Kingfisher it’s likely to be more of the same with trading tough in France, whilst things are improving in the UK, where B&Q enjoyed a decent bump in like-for-like sales in the first quarter. Next interims come after it delivered a blockbuster trading statement at the end of July as sales growth in Q2 picked up markedly and was well ahead of expectations. Full price sales rose 4%, a thumping beat on the -0.5% guided in May.
These are the upcoming company announcement to put in your calendar.
|September 17th||Adobe Inc||Q3|
|September 17th||FedEx Corp||Q1 2020|
|September 18th||Kingfisher Plc||Interim Results|
|September 19th||Next Plc||Interim Results|
Coming Up On XRay
Watch live or catch up on YouTube. Plus, if you subscribe via the MARKETSX platform, you can submit questions in real time.
|07.15 GMT||Sept 16th||European Morning Call|
|15.30 GMT||Sept 17th||Asset of the Day: Bullion Billions|
|15.45 GMT||Sept 17th||Asset of the Day: Oil Outlook|
|19.00 GMT||Sept 17th||LIVE: Trader Training|
|18.00 GMT||Sept 18th||The Stop Hunter’s Guide to Technical Analysis (part 3)|
Key Economic Events
There’s a lot going on in the coming week, here are the events we to watch out for.
|01.30 GMT||Sept 17th||RBA Monetary Policy Meeting Minutes|
|09.00 GMT||Sept 17th||German/Eurozone ZEW Economic Sentiment|
|08.30 GMT||Sept 18th||UK CPI Inflation|
|18.00 GMT||Sept 18th||FOMC Monetary Policy Decision Annoucement|
|18.30 GMT||Sept 18th||FOMC Press Conference|
|22.45 GMT||Sept 18th||New Zealand GDP (QoQ)|
|01.30 GMT||Sept 19th||Australia Employment Change/ Employment Rate|
|04.00 GMT||Sept 19th||Bank of Japan Interest Rate Decision|
|07.30 GMT||Sept 19th||Swiss National Bank Rate Announcement|
|11.00 GMT||Sept 19th||BoE Monetary Policy Decision Announcement|
ECB to loosen policy, data to prompt Fed and BoE easing bets?
Welcome to your guide to the week ahead in the markets.
ECB monetary policy meeting
Expectations are high ahead of this week’s European Central Bank policy meeting. A run of poor Eurozone data has raised bets on further rate cuts, while investors have snapped up government bonds in the bloc in anticipation of a potential restart to the quantitative easing programme.
US ISM was dire – will CPI, retail sales and sentiment be any better?
Key releases on the US calendar this week could crank up the odds of more easing from the Federal Reserve before the year is through. Last week’s ISM manufacturing print shocked, with the index falling into contraction territory. Soft readings from the upcoming CPI, retail sales, or University of Michigan sentiment index could see further dovish bets.
UK GDP and average earnings – background noise?
Sterling remains almost exclusively at the mercy of Brexit-related news flow, but growth and wage figures might draw some attention. After having been stuck on hold thanks to the uncertainty of Brexit, the Bank of England may have to be quick out of the starting gate once the October 31st departure deadline passes. Data recently has been weak and another blow from either growth or earnings would see expectations of a rate cut climb.
It’s been another bad year for Kroger so far. KR is down 12% year-to-date, compared with rises of 14% for the S&P 500 and 16% for its industry. Peers such as Target and Walmart have had strong quarters. Will Kroger’s own investments in expanding online and delivery offerings help it deliver a strong Q2 report?
|September 11th||Hermes International||H1|
|September 12th||WM Morrison Supermarkets||Q2 2020|
Coming Up on XRay
We’re got loads of great sessions for you this week. with our expert guests and residents. Watch live, or catch up when it’s convenient for you. Subscribe to submit questions that our presenters answer in real time.
|07.15 GMT||September 10th||European Morning Call|
|15.30 GMT||September 10th||Asset of the Day: Bullion Billions|
|15.45 GMT||September 10th||Asset of the Day: Oil Outlook|
|07.00 GMT||September 12th||Live Trading Room|
|18.00 GMT||September 12th||The Stop Hunter’s Guide to Technical Analysis|
Key Economic Events
Stay ahead of the markets by understanding what key economic events are coming up, and what impact they could have on your trades.
|08.30 GMT||September 9th||UK Monthly GDP|
|01.30 GMT||September 10th||China CPI|
|08.30 GMT||September 10th||UK Average Earnings|
|00.30 GMT||September 11th||Australia Westpac Consumer Confidence|
|11.45 GMT||September 12th||ECB Monetary Policy Rate and Statement|
|12.30 GMT||September 12th||US CPI|
|12.30 GMT||Steptember 13th||US Retail Sales|
|14.00 GMT||September 13th||US Preliminary Michigan Sentiment Index|
Week Ahead: Inflation headlines heavy data week
Welcome to your guide to the week ahead in the markets.
US & Eurozone inflation
As markets weigh the prospect of more stimulus from global central banks, hard economic data this week will be eyed for any signs that the premise on which market expectations are based is wrong.
Friday sees the release of the flash CPI estimate for the Eurozone. Indications so far do not suggest inflation in the bloc is moving higher. The same day the Fed’s preferred inflation gauge, the core PCE measure, is released. Core CPI has been moving up lately but the PCE indicator has remained subdued.
After the G7 summit over the weekend, markets are looking to the EU and Britain for where the next move is on Brexit. MPs return on September 5th but there will be plenty of politicking going on behind closed doors before then.
With Aussie traders looking to the next RBA meeting at the start of September, this week’s download of data will be closely assessed for clues about future rate cuts. Construction work done, building approvals and capital expenditure figures are all set for release in the coming days.
After the end of the trading week on Saturday we get the latest manufacturing and services figures out of China. The key question for risk assets is whether the trade war is still biting down on Chinese expansion.
A batch of US figures are out including core durable goods (Monday), the second reading of the Q2 GDP print (Tuesday), while on Friday we get the Chicago PMI and University of Michigan consumer sentiment reports.
Earnings season is wrapping up, with just a couple of releases this week.
|Aug 26th||Dollar General|
|Aug 28th||Tiffany & Co|
|Aug 28th||Hewlett Packard|
|Aug 29th||Pernod Ricard|
|Aug 29th||Best Buy|
There are plenty of things to look forward to on XRay this week. You can watch live, or subscribe to view on catch up.
|07.15 GMT||Aug 27th||European Morning Call|
|15.30 GMT||Aug 27th||Asset of the Day: Bullion Billions|
|15.45 GMT||Aug 27th||Asset of the Day: Oil Outlook|
|13.00 GMT||Aug 28th||Asset of the Day: Indices Insight|
|07.00 GMT||Aug 29th||Live Trading Room|
There are a lot of dates for the diary this week, including US Core Durable Goods and Eurozone Flash CPI.
|08.00 GMT||Aug 26th||German IFO Business Climate|
|12.30 GMT||Aug 26th||US Core Durable Goods|
|14.00 GMT||Aug 27th||US CB Consumer Confidence|
|01.30 GMT||Aug 28th||Australian Construction Work Done|
|14.30 GMT||Aug 28th||EIA Weekly Crude Oil Inventories|
|01.00 GMT||Aug 29th||ANZ Business Confidence|
|01.30 GMT||Aug 29th||Australia Private Capital Expenditure|
|12.30 GMT||Aug 29th||US Q2 GDP (2nd Reading)|
|09.00 GMT||Aug 30th||Eurozone Flash CPI|
|12.30 GMT||Aug 30th||US PCE Inflation|
Week Ahead: Doves to dominate at Jackson Hole
Welcome to your guide to the week ahead in the markets.
As global bond yields fall and investors worry about a recession, all eyes will be on the central banker meeting this week in Jackson Hole. Whilst it’s rare for major policy announcements to emerge from the symposium, markets will be fixated on any signals from the Fed and others about the path of interest rates.
Minutes from the Fed’s last meeting will be parsed for clues about future rate cuts. With markets pricing in more cuts this year, these minutes will help show exactly where members stand on the issue.
A few earnings to watch for – Anglo-Australian miner BHP Billiton and some US retail sector stocks including GAP and Target bring up the rear as US second quarter earnings season winds down.
There are still a lot of earnings releases in the current week, including big name brands Target, Salesforce and Gap.
|Approx 22.30 GMT||19th Aug||BHP Billiton Ltd – Q4|
|Pre-Market||20th Aug||Home Depot – Q2 2020|
|Pre-Market||20th Aug||Medtronic Plc – Q1 2020|
|Pre-Market||21st Aug||Lowe’s Companies Inc – Q2|
|Pre-Market||21st Aug||Target – Q2|
|After-Market||22nd Aug||Gap – Q2|
Join our XRay sessions live, or watch them on catch-up at a convenient time. This week, we’ll be covering the following topics in our live video streams.
|07.15 GMT||19th Aug||European Morning Call|
|17.00 GMT||19th Aug||Blonde Markets|
|15.30 GMT||20th Aug||Asset of the Day: Bullion Billions|
|15.45 GMT||20th Aug||Asset of the Day: Oil Outlook|
|13.00 GMT||21st Aug||Asset of the Day: Indices Insights|
There’s a lot going on this week, with special notice paid to the Red meeting in Jackson Hole.
|08.30 GMT||21st Aug||UK Public Sector Net Borrowing|
|12.30 GMT||21st Aug||Canadian CPI|
|18.00 GMT||21st Aug||FOMC Meeting Minutes|
|07.15 – 08.00 GMT||22nd Aug||Eurozone Member PMIs (Services, Manufacturing)|
|11.30 GMT||22nd Aug||ECB Monetary Policy Meeting Accounts|
|Day 1||22nd Aug||Federal Reserve Jackson Hole Symposium|
|22.45 GMT||22nd Aug||New Zealand Retail Sales|
|12.30 GMT||23rd Aug||Canada Retail Sales|
|Day 2||23rd Aug||Federal Reserve Jackson Hole Symposium|
Week Ahead: Inflation readings to shape central bank views
There are a lot of things going on this week, with inflation leading the headlines.
With investors betting the Federal Reserve will cut interest rates again in September, Tuesday’s US inflation figures will be of key importance for the direction of global markets. Core CPI advanced 2.1% in June, its biggest increase in a year and a half. If inflation pressures continue to build, it could undermine doves on the FOMC calling for more hikes. UK inflation figures are released on Wednesday.
China and Germany growth
Fears about a slowdown in China and Germany are at the heart of investor concerns for the global economy. As such a batch of data from the two countries this week will be important for risk assets. China’s industrial production figures and the German preliminary GDP print on Wednesday will be the most closely watched.
Walmart and US retail sales
Q2 earnings season is well past its peak but US retail giant Walmart delivers its quarterly numbers on Thursday before the market opens. Q1 earnings were a positive surprise with EPS of $1.13 beating expectations of $1.02. The key comp sales number hit 3.4%, making it the best quarter in 9 years. Despite fears for the US economy, consumer confidence and retail sales gauges remain robust. On that front, US retail sales numbers are due on Thursday shortly after Walmart reports.
Tencent and Alibaba
We’ll also be watching earnings from China giants Tencent and Alibaba. The ongoing trade dispute between the US and China is sure to be a weight, however Chinese consumers have remained relatively robust. For Alibaba, in addition to its ecommerce platform, we’ll be watching to see how well its cloud computing business is doing. Both represent important bellwethers for the Chinese economy.
Earnings season is still going strong, with these earnings releases in the next week.
|Pre-Market||14th August||Tencent Holdings Ltd – Q2 Earnings|
|After-Market||14th August||Cisco Inc – Q2 Earnings|
|Pre-Market||15th August||Walmart – Q2 Earnings|
|15th August||Alibaba – Q2 Earnings|
|After-Market||15th August||NVIDIA Corp – Q2 Earnings|
Tune in live or watch on catch-up.
|07.15 GMT||12th August||European Morning Call|
|17.00 GMT||12th August||Blonde Markets|
|12.30 GMT||13th August||LIVE: US CPI Coverage|
|15.30 GMT||13th August||Asset of the Day: Bullion Billions|
|10.00 GMT||15th August||Walmart Earnings Preview: LIVE|
Watch out for the following economic events in the coming week.
|08.30 GMT||13th August||UK Average Earnings|
|12.30 GMT||13th August||US CPI Inflation|
|09.00 GMT||13th August||Germany ZEW Economic Sentiment|
|01.30 GMT||14th August||Australia Wage Price Index|
|02.00 GMT||14th August||China Industrial Production|
|08.30 GMT||14th August||US CPI Inflation|
|01.30 GMT||15th August||Australia Unemployment Rate|
|08.30 GMT||15th August||UK Retail Sales|
|12.30 GMT||15th August||US Retail Sales, Philly Fed Manufacturing Index|
Week Ahead: Fed set to cut rates
Your essential guide to the week ahead
The Federal Reserve is widely anticipated to cut interest rates this week, but there are still big unanswered questions that would help the markets understand the longer-term plan.
1) Will the FOMC cut by 50bps or 25bps? Markets suggest a roughly 25% chance for a 50bps cut.
2) Is this an insurance cut or the start of a sustained easing cycle? While Jerome Powell has signalled a cut in July, it’s lot less clear whether we should expect more cuts are we progress through the latter part of 2019.
Earnings season continues and Apple is the main focus for traders this week.
Analysts are broadly bullish on Apple ahead of the results – check the Analyst Recommendations tool in the platform for more information.
Boris first week
Britain’s new prime minister enjoys his first full week at the helm. The market will be wondering if there is any likelihood for changes to Brexit deals and deadlines based on his initial talks with the EU. Sterling pairs should remain on edge.
Bank of England
The Bank of England is still shackled by Brexit – and all the related uncertainty – but it increasingly seems to be moving with the rest of the world. Instead of the next move likely to be a hike, it looks much more likely the central bank is leaning towards cutting interest rates. We’ll find out more on Thursday at noon, UK time.
Coming shortly after the Fed meeting these payroll numbers will be scrutinised as closely as ever. Job creation bounced back last month, dampening expectations for a 50bps cut – another strong print, combined with improving wage growth, may tell the market that the Fed is not under pressure to do any further easing
We’re in the thick of earnings season, so let’s look at the releases in the coming week:
|29th July||Ryanair – Q1 2020 Earnings|
|After-Market||30th July||Apple – Q3 Earnings|
|Pre-Market||30th July||Samsung – Q2 Earnings|
|Pre-Market||30th July||Pfizer Inc – Q2 Earnings|
|Pre-Market||30th July||Proctor & Gamble – Q4 Earnings|
|Pre-Market||30th July||Sony – Q1 2020 Earnings|
|30th July||Bayer – Q2 Earnings|
|Pre-Market||30th July||BP Plc – Q2 Earnings|
|Pre-Market||31st July||General Electric – Q2 Earnings|
|31st July||Airbus SE – Q2 Earnings|
|After-Market||31st July||Kraft-Heinz – Q2 Earnings|
|Pre-Market||31st July||Spotify – Q2 Earnings|
|13.00 BST07.00 BST||31st July||Fiat Chrysler – Q2 Earnings|
|31st July||BAE Systems Plc – Q2 Earnings|
|Pre-Market||1st August||Shell Plc – Q2 Earnings|
|07.15 BST||1st August||Rio Tinto – Q2 Earnings|
|Pre-Market||1st August||General Motors – Q2 Earnings|
|1st August||BMW AQ – Q2 Earnings|
|07.00 BST||1st August||Barclays Plc – Q2 Earnings|
|07.00 BST||2nd August||Royal Bank of Scotland – Q2 Earnings|
|2nd August||Berkshire Hathaway – Q2 Earnings|
|Pre-Market||2nd August||ExxonMobil Corp – Q2 Earnings|
|2nd August||BT Group Plc – Q1 202 Earnings|
Coming up on XRay this week. Tune in Live or watch on catch up.
|17.00 GMT||29th July||Blonde Markets|
|15.30 GMT||30th July||Asset of the Day: Bullion Billions|
|13.00 GMT||31st July||Asset of the Day: Indices|
|09.00 GMT||1st August||Bank of England special|
|12.30 GMT||2nd August||Nonfarm Payrolls LIVE|
Mark these events in your calendar this week:
|Tentative||30th July||Bank of Japan interest rate decision|
|01.30 GMT||31st July||Australia CPI inflation|
|18.00 GMT||31st July||FOMC interest rate decision|
|01.45 GMT||1st August||China Caixin manufacturing PMI|
|11.00 GMT||1st August||Bank of England interest rate decision|
|14.00 GMT||1st August||US ISM manufacturing PMI|
|01.30 GMT||2nd August||Australia retail sales|
|12.30 GMT||2nd August||Nonfarm payrolls|
Week Ahead: Earnings, ECB and US GDP to drive markets
The European Central Bank (ECB) provides the main headline risk event for traders as we look at whether policymakers are ready to pull the trigger on a fresh round of stimulus.Options are limited for the ECB but markets are increasingly betting it will choose to cut interest rates this year and may restart its bond-buying programme.
Estimates for US Q2 growth were revised up after better-than-expected retail sales figures last week. The question is whether there is enough strength in the quarterly growth numbers to make the market rethink just how much the Fed will cut rates. The first reading of the Q2 GDP estimate is due on Friday.
Earnings season hits full speed with a slew of corporate updates. Top of the bill is Facebook, which knocked it out the park in Q1. The consensus expected Q2 earnings per share (EPS) is $1.87, up 7.5% year-on-year. Sales are seen rising around 25% to $16.5 billion. But can advertising growth offset worries about regulation and higher costs?
Last month CEO Elon Musk said deliveries in the second quarter hit a record 95,200 cars, well ahead of the 91k expected by Wall Street. Key questions are whether achieving these production targets is leaving the business nursing additional costs, and whether management sticks to its guidance to return to profitability in Q3.
How much has the 737 MAX grounding affected sales and earnings? We should find out more about how much of a it Boeing expects to take when we get the second quarter numbers on Thursday. Boeing also has exposure to tariffs and has led to analysts downgrading the stock lately.
Earnings season continues this week so here’s your head’s up on the names to watch. The following companies are set to publish their quarterly earnings reports this week:
|Pre-Market||23rd July||Lockhead Martin Corp – Q2 Earnings|
|23rd July||Santander SA – Q2 Earnings|
|After-Market||23rd July||Visa Inc – Q2 Earnings|
|08.00 BST||23rd July||UBS – Q2 Earnings|
|After-Market||23rd July||Snap Inc -Q2 Earnings|
|Pre-Market||23rd July||Coca-Cola C – Q2 Earnings|
|After-Market (Paris)||24th July||LVMH – Q2 Earnings|
|24th July||AMD – Q2 Earning|
|12.00 BST||24th July||GlaxoSmithKline Plc -Q2 Earnings|
|After-Market||24th July||Facebook – Q2 Earnings|
|After-Market||24th July||Ford Motor Co – Q2 Earnings|
|24th July||Deutsch Bank – Q2 Earnings|
|Pre-Market||24th July||United Parcel Service – Q2 Earnigns|
|Pre-Market||24th July||Caterpillar Inc Q2 Earnings|
|After-Market||24th July||Tesla – Q2 Earnings|
|Pre-Market||24th July||AT&T Inc – Q2 Earnings|
|After-Market||25th July||Alphabet – Q2 Earnings|
|Pre-Market||25th July||Boeing Co – Q2 Earnings|
|After-Market||25th July||Starbucks Corp – Q3 Earnings|
|Pre-Market||25th Juy||Comcast – Q2 Earnings|
|07.00 BST||25th July||Unilever – Q2 Earnings|
|13.00 BST||25th July||TOTAL SA – Q2 Earnings|
|06.15 BST||26th July||Nestle – Q2 Earnings|
|Pre-Market||26th July||McDonalds Corp – Q2 Earnings|
|Pre-Market||26th July||Twitter – Q2 Earnings|
Don’t miss the expert analysis and opinion, live-streamed direct to your platform. Here are the highlights from XRay this week.
|17.00 GMT||22nd July||Blonde Markets|
|15.30 GMT||23rd July||Asset of the Day: Bullion Billions|
|19.00 GMT||23rd July||LIVE: Trader Training|
|11.45 GMT||25th July||ECB Decision LIVE|
Watch out for the biggest events on the economic calendar this week:
|From 07.15 GMT||24th July||Eurozone flash PMIs|
|13.45 GMT||24th July||US flash manufacturing PMI|
|08.00 GMT||25th July||German IFO report|
|11.45 GMT||25th July||ECB Interest Rate Decision|
|12.30 GMT||25th July||ECB Press Conference|
|12.30 GMT||26th July||US Q2 GDP first reading|
Week Ahead: Earnings Season Kicks Off
US markets have hit record highs but could the Q2 earnings season take the shine off stocks?
With two weeks to go until to earnings season begins, 82% of companies with revised earnings estimates going into the reporting period have revised them down. Lowballing by Wall Street before earnings season is normal, but the scale of the downward revisions has raised a few eyebrows. We saw the same thing ahead of the Q3 2018 earnings, just before stocks slumped into a bear market. Although that slump proved temporary, the pattern is worth noting. Earnings season unofficially kicks off with Citigroup on Wall Street on Monday and continues through to mid-August.
We’ll be hosting a daily walkthrough of what to watch out for on XRay covering everything you need to know from US earnings season.
In the UK, watch for trading updates from SSE, Thomas Cook, Anglo American and easyJet on Thursday.
China GDP – Will We See a Slowdown?
Macro data will be in focus this week as markets watch to see whether the slowdown in global growth is gaining pace.
Chinese GPD and industrial production numbers are due early Monday. Q2 growth is seen slowing to 6.2% from 6.4% in Q1. For the rest of the year economists think the economy will grow at 6.2%, this would mark a 30-year low for the country. While there are many factors at play, the ongoing trade war with the US must take some of the blame for the slowdown.
Australian employment data
Australia’s dollar looks likely to be sensitive to employment data this week, with traders looking for clues about when interest rates may be cut again. The Reserve Bank of Australia has tied monetary policy directly to the labour market. The RBA has already cut rates but the question is how many more are in the offing?
Its a busy few weeks with earnings season, and there are lots of reports coming out this week. Below are the major reports to watch out for this week.
|Pre-Market||15th July||Citigroup – Q2 Earnings|
|Pre-Market||16th July||Johnson & Johnson – Q2 Earnings|
|Pre-Market||16th July||JPMorgan Chase & Co – Q2 Earnings|
|Pre-Market||16th July||Wells Fargo & Co – Q2 Earnings|
|Pre-Market||16th July||Goldman Sachs – Q2 Earnings|
|Pre-Market||16th July||Domino’s Pizza – Q2 Earnings|
|Pre-Market||17th July||Bank of America Corp – Q2 Earnings|
|After-Market||17th July||Netflix Inc -Q2 Earnings|
|Pre-Market||17th July||Abbot Laboratories – Q2|
|After-Market||17th July||IBM – Q2 Earnings|
|After-Market||17th July||eBay – Q2 Earnings|
|After-Market||18th July||Microsoft – Q4 Earnings|
|Pre-Market||18th July||Philip Morris Inc – Q2 Earnings|
|Pre-Market||18th July||Morgan Stanley – Q2 Earnings|
|07.00 BST||18th July||Danske Bank – Q2 Earnings|
|Pre-Market||19th July||BlackRock Inc – Q2 Earnings|
|Pre-Market||19th July||American Express – Q2 Earnings|
Don’t miss our expert analysis and insight live-streamed direct to your platform. We’ve got videos throughout the week – tune in live or watch on catch-up.
|12.45 GMT||Live everyday this week||Earnings Season Daily |
|13.00 GMT||16th July||Asset of the Day: Bullion Billions|
|19.00 GMT||16th July||LIVE: Trader Training|
|13.00 GMT||17th July||Asset of the Day: Indices Insights|
Take a look at the upcoming events for your economic calendar. For a full list, head to our platform.
|02.00 GMT||15th July||China GDP|
|22.45 GMT||15th July||New Zealand CPI|
|08.30 GMT||16th July||UK employment report|
|09.00 GMT||16th July||German ZEW economic sentiment|
|12.30 GMT||16th July||US retail sales|
|08.30 GMT||17th July||UK CPI|
|01.30 GMT||18th July||Australia employment report|
OPEC Preview: oil in a bear market
December 5th, 2018
Production cut expected
OPEC and its allies convene in Vienna this week with expectations firmly favouring a supply cut in order to rebalance the market after the ramp in production seen ahead of the Iran sanctions. A cut in excess of 1m bpd seems assured, although it could be significantly higher than that. Anything up to 1.4m bpd seems anticipated, and therefore it may take more to significantly rally the market. A commitment to a longer and deeper cut will be required. Wire reports on Tuesday suggested a cut of at least 1.3m bpd is being worked on.
The meeting of the 26 OPEC and non-OPEC nations comes at a key moment for the market, with crude prices having slumped by around 20% or so over the course of October and November. The pace of that decline was startling and has undoubtedly forced a rethink of the increase in production we saw over the summer, particularly on the part of Saudi Arabia.
It’s not been alone: Saudi Arabia, Russia and the US have all been opening the taps this year. OPEC production in October hit the highest since December 2016 and was broadly flat in November. OPEC pumped 33.31m barrels in October, up 390k barrels from the month before. Saudi Arabian output is booming, climbing to a record 11m bpd. Undoubtedly this ramp cannot continue if the market is to rebalance given the declining expectations for demand growth.
Russian oil output hit a post-Soviet record high of 11.41 million bpd in October. However, this had dipped to 11.37 bpd in November. US production has surged to a record 11.475m bpd in September and is seen reaching 12.1m bpd next year (EIA). US production is now up 21% in the last year and the latest rise could mean more upward revisions to forecasts.
Donald Trump has repeatedly berated OPEC and others for trying to force up prices. Whilst there is pressure on the US-backed Saudi regime to acquiesce to demands to do nothing that would help lift prices, OPEC and its allies are set to push ahead. Although there are competing factions and priorities, no member wants a repeat of the collapse in prices four years ago.
US shale casts a long shadow. In particular, we must look at OPEC needing to act now to prevent a further squeeze on prices as more pipeline capacity comes on stream next year that would mean more US crude on the world’s markets. OPEC members are well aware that supporting prices is good for US shale producers, but they seem unwilling to go head to head again.
The question it leaves us with is to what extent OPEC is losing its relevance. Qatar may be a small player (approximately 2% of OPEC production), but it could suggest smaller suppliers are starting to lose faith in the Saudi-led cartel. Could it be the first domino? We must look at it in context of the regional powerplays. Whilst it may indicate a lack of consensus among members about cuts, it would be more likely to reflect the political tension between Qatar and its neighbours, in particular Saudi Arabia, which along with Egypt, the UAE and Bahrain is maintaining a trade embargo on the country. It would seem sensible for Qatar to distance its energy policy as much as possible from Saudi influence, particularly given its focus on natural gas over oil. It seems unlikely that Qatar’s decision will cast much of a shadow over the meeting or prevent an agreement.
Speculative positioning has turned south. CFTC figures show net longs down to their lowest in a year, down to 348k contracts by the beginning of November from 739k in February.
On the Brent daily chart, we see a firm bounce at the start of the week, with Brent breaking the downtrend resistance level and looking to push up to the 23.6% retracement of the recent down move at around $64.65. However yesterday’s failure to maintain any bullish momentum suggests there is little appetite at present for a pre-OPEC rally.