- US stocks set to kick off new month with gains.
- OPEC+ to increase output by 400k bbls/d as previously agreed.
- Upcoming US nonfarm payrolls an important barometer in Fed policy outlook.
- Risk assets to stay bid as long as policy normalisation remains distant.
Oil prices could be in for some volatility should there be any surprises out of today’s OPEC+ meeting, the EIA data or the assessment of Hurricane Ida’s impact on US output.
Although OPEC+ is widely expected to press ahead with its intended output increase of 400k barrels per day, it remains to be seen how the alliance would address the downside demand risks stemming from the Delta variant. An OPEC+ supply hike should also help keep key members of the alliance onside, placing a lid on the political dramas that have plagued key meetings in the recent past.
Oil prices should find enough support from continuously tightening global market conditions through year-end. However, any upside in prices may be limited, barring a halt to OPEC+ output hikes, with the group’s own projections reportedly pointing to a return to surplus in 2022. From a technical perspective, the 50-day simple moving average remains the immediate resistance level for WTI futures, while offering immediate support for Brent.
Going forward, the trajectory for oil benchmarks will be mostly dictated by pandemic-related developments and their impact on the recovery in global demand.
Global stocks still on course for new highs
Asian stocks are mostly in the green while US and European futures point to a positive start to September. Global stocks are set to continue churning out near-term gains given the longer runway for equity bulls accorded by a dovish Fed Chair who’s in no rush to raise US interest rates.
Risk assets are operating on the idea that, despite the stubborn nature of the pandemic and the enduring concerns over the Delta variant, such developments will not warrant a return to the total lockdowns across broad swathes of the developed world. As such, the global economic recovery should continue chugging along with major central banks wanting to make sure it isn’t derailed by ill-timed policy adjustments.
However, the recent deterioration in US consumer confidence as well as China’s official non-manufacturing and Caixin manufacturing PMIs show that a healthy dose of caution is still warranted in the markets. Risk appetite should be able to move past signals of a decelerating global economic recovery as long as calls to wind down pandemic-era stimulus aren’t ramped up, despite some ECB officials now apparently joining the hawkish fray.
US Nonfarm Payrolls report key to Fed mandate
This Friday’s US jobs report will serve as the next important marker on how soon the Fed will tighten monetary policy. A headline payrolls print that’s significantly higher than the Wall Street forecast of 748k, and one that restores more of the six million jobs lost since the pandemic, will force dollar bulls to defy Fed Chair Jerome Powell’s patient stance. On the other hand, risk assets are likely to revel in signs of a cooling US jobs market which would push back the thought of a sooner-than-expected US rate hike.
Ultimately, as long as market sentiment can move past concerns stemming from downside risks, abundant central bank liquidity should still translate into fresh record highs for global stocks over the near-term.
