Trump Tour

Angela Merkel signalled that Europe can no longer count on the US as a reliable partner after G7 leaders met in Sicily. On his first tour as President, Trump refused to endorse the Paris climate accords, criticized NATO members’ lack of commitment (in the form of budgets) and called the German trade surplus with the US “very bad” vowing to block German car exports to the US. Trump returns to the US where a long to-do list of domestic entanglements awaits.

OPEC Meets

On May 25th, OPEC announced an extension to production cuts a further nine months. The deal exempts Libya, Nigeria and Iran. In doing so, OPEC has delivered what the market expected them to do, no more and no less. Oil prices slid in the wake of the announcement with Brent trading down from over 54 to 51 and WTI from 51 to nearly 48, a remarkably sharp fall.

OPEC has got itself into a difficult position where it is basically telling the market that it has more capacity than it is utilizing. OPEC’s attempt to signal strength to the market are now in fact weakening the market.

On the other hand, the physical market continues to drift towards balance. US crude, gasoline and distillate inventories are in their 7th, 4th and 3rd weeks of draw (that is, decline), which indicates a tighter market.

Meanwhile in Europe

PMI’s are at a six year high, inflation is close to 2%, and GDP growth estimates have been continuously upgraded from 1.2% a year ago to 1.7%. Unemployment is stubborn in certain areas such as Italy, but Eurozone wide, unemployment has fallen from a recent (2013) peak of 12% to 9.5%. Political risk has subsided since the French elections and Angela Merkel’s popularity seems to be getting stronger. An Italian election may introduce some uncertainty but thus far, loud, fractious plebiscites seem to be the preserve of Anglo-Saxons. Perhaps Merkel’s comments about not being able to rely on the US and the UK are more lament than complaint.

Europe’s health will raise some concerns over ECB policy as the central bank decides on rates and shopping lists Jun 8. Markets adore loose monetary policy whether they do good or not.

Week ahead:

May 29

  • Eurozone M3
  • Japan retail sales

May 30

  • European inflation data, business climate, consumer sentiment, economic confidence, industrial sentiment, unemployment
  • France GDP
  • ECB’s Liikanen speaks
  • US core PCE, personal income and spend, Case Shiller 20,
  • Japan industrial production

May 31

  • Brazil SELIC
  • European inflation data
  • Italy unemployment
  • BoE lending data
  • Chicago PMI, Beige book, home sales

Jun 1

  • UK and Eurozone mfg PMI
  • US ISM and ADP
  • India PMI
  • Fed’s Powell speaks

Jun 2

  • US Avg Hrly Earnings, NFP, unemployment

Jun 3

  • US ISM mfg / non mg