01/12/16 - Oil Price Surges on OPEC Deal

OPEC

OPEC clinched a deal to curtail oil supply, as the need to clear a record global crude glut and prove the group’s credibility brought its first output cuts in eight years. Crude rose as much as 8.8 percent in London.

OPEC will reduce output to 32.5 million barrels a day, Iranian Oil Minister Bijan Namdar Zanganeh told reporters in Vienna Wednesday. The breakthrough deal showed an apparent acceptance by Saudi Arabia that Iran, as a special case, can still raise production.

The Organization of Petroleum Exporting Countries is ditching a pump-at-will policy introduced in 2014 to resume its traditional role as price fixer. The shift - aimed at draining a crude glut that’s pushed down prices for two years - will help revive the tattered finances of oil-producing countries and reverberate in markets around the world, from the Canadian dollar to Nigerian bonds to U.S. shale equities.
 

USD 

The U.S. dollar hit its highest level against the yen in 8-1/2 months on Wednesday and also surged against the euro and Swiss franc after a surge in oil prices pushed U.S. Treasury yields higher, while strong private payrolls data bolstered expectations for a hawkish Federal Reserve next year.

The gains in oil prices boosted views of higher inflation, pushing U.S. Treasury yields higher given the negative impact of inflation on bond prices. The higher Treasury yields fueled demand for the dollar relative to currencies such as the euro and yen, whose government bond yields are still at record lows.

ADP National Employment Report data on showed that U.S. private employers added 216,000 jobs in November, well above economists' expectations. The ADP figures precede the U.S. Labor Department's more comprehensive nonfarm payrolls report on Friday.
 

GBP

The Governor of the Bank of England wants a smooth changeover when Britain leaves the EU, to give companies time to adapt to the new setup, and avoid any wrenching change in the economy or in the financial markets. That means Britain would not necessarily switch overnight from one regime to another when leaving the EU, which is expected to take place in early 2019.

The Governor has been criticised for his interventions on Brexit in the past, facing accusations that he wanted the UK to remain in the EU and tried to sway the debate. Presenting the Bank of England’s financial stability report, he sought this time to align himself with Theresa May.
 

Key Announcements

09.30 – GBP : Manufacturing PMI; Forecast at 54.4 against a previous of 54.3

15.00 – USD : ISM Manufacturing PMI; Forecast at 52.1 against previous of 51.9