Oil is the asset in focus as OPEC discusses a potential extension of production curbs, while in equities all eyes are on British banks with the Bank of England’s stress tests due out.
OPEC
Oil grandees from the Organization of Petroleum Exporting Countries (OPEC) convene in Vienna for their semi-annual meeting on Thursday, November 30th. The key topic for discussion will be whether to extend the 1.8m barrel-a-day production curbs due to expire in March 2018.
Current market consensus is that members, along with Russia, will agree to prolong the output controls as they seek further rebalancing in the oil market.
Expectations are high. Crude prices jumped to two-year highs ahead of the meeting in anticipation and speculative net long positions are at record highs, according to CFTC data. With the market positioned this long, it may be tough for OPEC to deliver enough to see crude futures rally any more.
Another factor that could keep a lid on any gains for crude is the presence of US shale. The International Energy Agency has recently trimmed its demand guidance for next year, noting that while OPEC is limiting production, non-OPEC supplies are rising as prices recover.
Saudi Arabia, the largest producer, wants an extension to cuts. Oil ministers from Iran to the UAE have also voiced support.
Unlike previous attempts to curb production, the current effort is proving remarkably successful. Output by members dropped 0.46% in October, to 32.59 million barrels a day.
Bank stress tests
Attention on Tuesday is firmly on Lloyds (LON:LLOY), RBS (LON:RBS), Standard Chartered (LON:STAN), HSBC (LON:HSBA) and Barclays (LON:BARC) with the Bank of England due to publish the results of its 2017 stress tests.
Banks are better capitalised than before, but this year’s tests will be tougher with a bigger contraction in global GDP and higher capital hurdles in the model.
According to Goldman Sachs (NYSE:GS), the average CET1 ratio for UK banks is up 60 basis points from last year's stress test and is up 150 bps year-to-date.
US inflation
The Federal Reserve’s preferred measure of inflation, the core personal consumption expenditures (PCE) index, is due on Thursday.
Although the previous report showed headline inflation jumped in September, core PCE remained lacklustre. Core PCE rose 1.3% in the 12 months to September, after increasing 0.1% the last five months. Core PCE has undershot the Fed’s target for more than five years.
In spite of the benign inflation conditions, the Fed is still expected to raise interest rates in December. The question is how much more tightening is to come in 2018. With this the last PCE reading before that meeting, traders will be watching carefully for any signs that it could shift policymakers’ projections and the so-called dot plot, which will be updated in December.
Manufacturing PMIs
Friday kicks off December with the last round of manufacturing PMIs of 2017. So far this year the surveys have pointed to a global rally for manufacturers as growth picks up. Europe has been particularly strong, with manufacturing growth seen at its best level in more than six years.
UK growth has so far been a little less strong than the eurozone, but may see some improvements after the CBI reported that order books for manufacturers are at their strongest in 30 years.
Brexit
No official negotiation rounds, but there could be a significant amount of communication from London and Brussels ahead of a planned meeting between Theresa May, Donald Tusk and Jean-Claude Juncker on December 4th. The UK prime minister has the backing of her cabinet to improve the financial settlement and hopes are high are that it’s enough to unlock talks on future relations by the time of the EU Summit on December 14-15th.
Economic Calendar
(All times GMT)
Monday, 27 November
Tentative – ECB financial stability review
15:00 – US new home sales
Tuesday, 28 November
07:00 – UK bank stress tests, Bank of England financial stability report
09:00 – Eurozone M3 money supply
10:00 – UK inflation report hearings
13:30 – Canada raw materials price index
15:00 – US CB consumer confidence
16:15 – Bank of Canada governor Poloz to speak
20:00 – RBNZ financial stability report
Wednesday, 29 November
00:01 – UK BRC shop price index
All day – German preliminary CPI inflation releases
07:45 – French consumer spending, preliminary GDP
08:00 – Spanish flash CPI inflation
09:30 – UK net lending to individuals
13:30 – US preliminary GDP Q3 (second estimate)
15:00 – US pending home sales
15:30 – US weekly crude oil inventories
Thursday, 30 November
All day – OPEC meeting
00:00 – New Zealand ANZ business confidence
00:01 – GfK consumer confidence
00:30 – Australia private capital expenditure, building approvals
01:00 – China manufacturing and non-manufacturing PMIs
07:00 – German retail sales
07:45 – French preliminary CPI inflation
08:00 – Swiss KOF economic barometer
10:00 – Eurozone CPI inflation flash estimate
13:30 – Canada current account
13:30 – US weekly unemployment claims, core PCE price index, personal spending
14:45 – Chicago PMI
23:30 – Japan household spending, national core CPI inflation, Tokyo core CPI inflation
Friday, 1 December
00:30 – Japan final manufacturing PMI
01:45 – China Caixin manufacturing PMI
09:00 – Eurozone final manufacturing PMI
09:30 – UK manufacturing PMI
13:30 – Canada employment change, unemployment rate, GDP
15:00 – US ISM manufacturing PMI
Corporate Calendar
Tuesday, 28 November
Topps Tiles Plc (LON:TPT) – final results
Pets at Home Group PLC (LON:PETSP) – interim results
Shaftesbury Plc (LON:SHB) – final results
Wednesday, 29 November
Tiffany & Co (NYSE:TIF) – Q3/2018, EPS estimate 0.763
Britvic (LON:BVIC) – final results
Thursday, 30 November
Kroger Co (NYSE:KR) – Q3/2018, EPS estimate 0.397
Daily Mail & General Trust (BS:DMGTl) – final results
Marston’ Plc (LON:MARS) – final results
Greene King (LON:GNK) – interim results
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