The moves we saw yesterday in the wake of the OPEC deal were instructive on the way the deal has the potential to change the landscape for markets. In many ways, this could be just the beginning. The implication a change in the demand/supply balance in the oil market is going to play into the hands of the producers and especially the US, where shale production has been under the kosh for the past two years. A sustained higher price will allow prior investments to reach fruition earlier and create a more comfortable backdrop to future projects. US exports of oil are likely to rise and improve the external position (current account), something that over time will change the longer-term dynamics of the dollar. All this will probably need further production cuts, but yesterday’s move could well have been the start down that road.
That’s the long game. More immediately, we are entering the final day of the current quarter. Overnight, we’ve seen Japan CPI come out at -0.5% YoY. But not to worry because the Bank of Japan has said it will tolerate inflation of above 2% when they revised their policy regime last week. This is a bit like me promising to run a sub 2-hour marathon… somewhat unbelievable. We also see CPI data for the Eurozone, with Chicago PMI following later in the day. In FX, ranges are remaining fairly tight and on the majors, both sterling and the yen are reluctant to push key levels against the US dollar. But we are on the last trading day of the month and quarter, which could induce some end of week volatility. In equities, Deutsche shares are under pressure as concerns mount regarding the latest fine placed on the bank, but this comes after a year during which it has seen several period of pressure and concern.