Week Ahead: OPEC meets to discuss production cut extensions & US nonfarm payrolls released

Week Ahead

 OPEC and allies gather this week to discuss how best to proceed in what has been a very challenging year for oil. How will this affect energy markets moving forward? US Nonfarm Payroll data for November is also revealed, showcasing how many, if any, new jobs have entered the US economy last month. 

OPEC meetings 

The fate of the 2021 oil markets is in OPEC’s hands as the 180th OPEC Conference takes place on Monday 30th November.  

The 12th OPEC and non-OPEC Ministerial Meeting follows on Tuesday, December 1st 

Production cut extensions are likely to dominate the agenda for this latest round of talks. OPEC has already lowered production by record levels in 2020 and was hoping to ease levels back up in January 2021. 

This now seems unlikely. Instead, Reuters reports that the group and its allies will probably vote to extend its production cuts well into the new year. 

“The OPEC+ ministers will probably agree to extend current production for the first quarter of 2021,” an OPEC delegate told Reuters regarding policy for next year. 

 “There are still some challenges on demand, but I hope the vaccine will change the picture soon,” he said. 

January’s goal was to ease production output upward by 2 million barrels per day, which corresponds to roughly 2% of global oil consumption. OPEC members are currently cutting 7.7m bpd. The planned January cuts would have taken daily output volumes up to 5.7m bpd. 

While the news of various vaccines having very high levels of effectiveness has given a glimmer of hope to oil producers, it is unlikely that oil demand will really pick up until the second half of 2021. This due to mass vaccination taking a while to fully implement, despite the fact vaccines may gain emergency approval and quick roll out in the coming months. 

For now, demand remains suppressed thanks to the pandemic’s second wave.  

Another factor OPEC will have to contend with is conformity. While a pre-conference meeting on 17th November confirmed full member conformity with OPEC cuts, not all member states are receptive. 

Libya, for instance, has said it will not commit to further cuts until its own production volumes reach 1.7m bpd. Currently, Libyan output measures 1.25m bpd, after the reopening of one of its largest oilfields. Iraq, too, is already non-compliant and is forecast to stay that way. 

That may become a major sticking point in next week’s negotiations.  

What will this mean for oil prices? It’s difficult to say at this point. Vaccine news has already put a bid on pricesCrude prices rose to their highest since March last week, breaking free from a multi-month range with Brent north of $48 and WTI rallying to $46. 

US Nonfarm Payrolls 

Friday, December 4th will see the release of November’s US Nonfarm Payrolls (NFP) data. This is an indicator of how many jobs have entered or exited the US economy that month. 

Has November continued the upward swing seen across the previous two months? 

NFP rose 638,000 in October, while in September the number of new jobs rose by 672,000, revised from 661,000, exceeding the market expectation of 600,000. 

Despite this, the pandemic does not seem to be under control in the US. More than a million new cases, and 85,000 new hospital admissions, were reported across the country last week. 

But the US is keen to keep businesses and the economy open. President-Elect Joe Biden has been trying to avoid the phrase “lockdown” – a possible indicator of his administration’s intention to keep regulations light once he takes office in January 2021. 

Dr Vivek Murthy, a former U.S. surgeon general who is a top health advisor to President-elect Joe Biden, has described a full national lockdown as a “last resort”, showing further US attitudes to righter restrictions. 

Can the US take the pandemic heat? 

Major Economic Data 

Date  Time (GMT)  Currency  Event 
Sun Nov 29  11.50pm  JPY  Retail Sales Y/Y 
       
Mon Nov 30  1.00am  CNH  Manufacturing PMI 
       
  8.00am  CHF  KOF Economic Barometer 
       
  All day  All  OPEC Meetings 
       
  All Day   EUR  Eurogroup Meetings 
       
  2.45pm  USD  Chicago PMI 
       
  3.00pm  USD  Pending Home Sales m/m 
       
Tues Dec 01  3.30am  AUD  Cash Rate 
       
  3.30am  AUD  RBA Rate Statement 
       
  09.30am  GBP  Final Manufacturing PMI 
       
  All Day  All  Opec-JMMC Meetings 
       
  1.30pm  CAD  GDP m/m 
       
  2.30pm  CAD  Manufacturing PMI 
       
  3.00pm  USD  ISM Manufacturing PMI 
       
Wed Dec 02  12.30am  AUD  GDP q/q 
       
  1.15pm  USD  ADP Nonfarm Employment Change 
       
Thu Dec 03  1.30pm  USD  Unemployment Change 
       
  3.00pm  USD  ISM Services PMI 
       
Fri Dec 04  1.30pm  CAD  Employment Change 
       
  1.30pm  CAD  Unemployment Rate 
       
  1.30pm  USD  Average Hourly Earnings m/m 
       
  1.30pm  USD  Nonfarm Employment Change 
       
  1.30pm  USD  Unemployment Rate 

 

Key earnings data 

Date  Company  Event 
Mon Nov 30  Zoom Video Communication  Q3 2021 Earnings 
     
Tues Dec 01  Salesforce  Q3 2021 Earnings 
  Scotiabank (Bank of Nova Scotia)  Q3 2021 Earnings 
  Bank of Montreal  Q4 2021 Earnings 
  China Gas Holdings LtdShs  Q2 2021 Earnings 
  Hewlett Packard Enterprise Co.  Q4 2020 Earnings 
     
Weds Dec 02  Royal Bank of Canada  Q4 2020 Earnings 
  Snowflake Ink  Q3 2021 Earnings 
  CrowdStrike  Q3 2021 Earnings 
  Synopsys Inc  Q3 2021 Earnings 
  Splunk Inc  Q3 2021 Earnings 
  Okta Inc  Q3 2021 Earnings 
  Elastic B.V.   Q2 2021 Earnings 
  National Bank of Canada  Q4 2020 Earnings 
  Zscaler Inc  Q1 2021 Earnings 
     
Thu Dec 03  Toronto-Dominion Bank  Q4 2020 Earnings 
  Dollar General Corporation  Q3 2020 Earnings 
  DocuSign Inc  Q3 2021 Earnings 
  Canadian Imperial Bank of Commerce (CIBC)  Q4 2020 Earnings 
  Marvell Technology Group Ltd  Q3 2021 Earnings 
  Kroger  Q3 2020 Earnings 
  Copper Cos. Inc  Q4 2020 Earnings 
  Ulta Beauty Inc  Q3 2020 Earnings 

Crunch time for the dollar as US markets shut for Thanksgiving

Morning Note

With US markets closed for the Thanksgiving holiday, the focus is on today’s European session as markets continue to track this reflation/reopening trade to see whether it’s got further to run. We’ve seen the second-largest 3-week inflow into value on record – Dec 2019 was the biggest, but didn’t pan out too well. At the open, the main bourses lack any real direction and were treading water in the first hour. They may not offer much movement without the steer from Wall Street – usually Thanksgiving is a good excuse to hit the pub early for City traders.

The FTSE 100 opened above 6,400 after yesterday’s weaker session but struggled to find buyers above this level and quickly turned lower. Ex-dividend factors account for 5.5pts. The FTSE 100 has massively underperformed global equities, and has the best 2021 expected dividend yield (4%) of all major stock markets: it ought to be due to catch up if you buy into the reopening trade vis-à-vis energy, financials and value.

Yesterday, the Nasdaq rose, and the S&P 500 and small cap Russell 2000 fell as the rotation stalled. Tesla shares rose again to fresh record highs, climbing over 3% to $574 and come close to the market cap of Berkshire Hathaway. US 10-year Treasury yields ticked higher to 0.886%. The dollar is weaker with DXY under 92 and facing the key horizontal support at 91.70, the Sep low. Not a lot of support under that before the 2018 lows at 88.

EURUSD is approaching the line in the sand at 1.20 as it trades at 1.1920 this morning. The worsening pandemic in the US – 16th consecutive day with fresh all-time high Covid hospitalisations show it’s far from under control – may result in relative economic underperformance vs peers, albeit we should note that the main reason for economic contraction is lockdown, not the virus per se.

Chiefly dollar weakness can be attributed to an improved global trade outlook post-Trump, negative real rates in the US and an improving global economic outlook should be a recipe for dollar weakness. Rising oil prices should lift inflation (in addition to other factors previously discussed) next year, furthering pushing real US rates negative. However, the dollar always surprises as the global reserve currency and a short squeeze cannot be written off.

Crunch time for USD as Apr 2018 lows approach:

The USD is approaching lows last seen in April 2018.

AstraZeneca is facing growing scepticism over the way it reported the results of its vaccine trials. The company has since admitted that the more effective half-dose regimen was only given to participants because of mistake. Serendipitous it may have been, but the charge is that Astra has not been entirely forthcoming with the data.

Moreover, the head of the US ‘Operation Warp Speed’ programme, Moncef Slaoui, said yesterday that the more effective dose was only administered to people aged under 55. Worth noting that he used to work for Moderna until very recently. The criticism seems to be coming largely from across the pond, but shares have taken bit of a hit since Monday – it may be difficult for Astra to get emergency approval in the US. Pfizer and Moderna would not be too unhappy about that.

Minutes from the Federal Reserve’s November meeting showed participants want to provide updated guidance on their bond buying “fairly soon”, but they did not think they need to make any immediate adjustments. Some policymakers felt that lower- and middle-income households may soon run out of cash if there is no further fiscal stimulus. Looks as though the Fed, as expected, will try to step up if the fiscal side does not come through.

Gold appears to be making a base at $1,800 with the 200-day average offering the major support. On the hourly chart we see a push to $1,833-$1,838 area as being key for the bulls to regain the near-term momentum.

Gold is approaching an $1,800 base.

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