US stocks gained for the third consecutive session, and the gains seemed more stable this time, as the VIX index retreated below the 22 mark. The Federal Reserve (Fed) storm is coming to an end, with most hawkish expectations already factored in the asset prices, and the strong corporate earnings help equities bind up their wounds.
We have two important events on today’s macro calendar: the OPEC meeting and the US ADP report.
OPEC: No need to hold your breath…
OPEC will discuss whether and by how much they should increase its oil output at today’s meeting.
Goldman thinks that the outcome of the meeting is evenly balanced between an unchanged 400’000 barrels increase per day or a ‘much bigger hike’. Yet, there is little chance for OPEC to announce a much bigger hike given that many key oil producer countries are already struggling to meet the actual 400’000 barrels increase; putting more pressure on the cartel seems unlikely.
Crude prices are poised for an advance towards the three-digit levels in the coming months given that global glut declines faster than expected due to a stronger recovery in demand, and ongoing supply constraints.
The latest API data showed that the crude inventories may have declined 1.6 million barrels last week, versus analysts expecting a roughly 1.8-million-barrel build. The bigger picture shows that the US crude inventories fell by 76 million barrels since the start of 2021, and about 19 million barrels since the start of 2020. Lower inventories inevitably pressure the crude prices higher.
Plus, tensions between Ukraine and Russia bring an extra pressure through the rising natural gas prices.
All in all, the actual factors are supportive of a further rise in oil prices and all lights are green for an extended rally in oil toward the $100pb mark.
PS: Higher energy costs also mean a higher inflation, and a tighter Fed, but that reasoning has been widely priced in already.
US jobs don’t really matter
According to the latest JOLTS data, more than 10 million Americans quit their jobs in December and today’s ADP data is expected to reveal that the US economy added 185K new private jobs in the final month of 2021 versus more than 800’000 printed a month earlier.
Yet we know that the December ADP figure could come much smaller than that; we could even see a negative print today as the omicron may have taken a severe toll on the US jobs market in December.
The good news is that a bad print will be put on the back of the omicron wave and won’t really affect the improving risk appetite. Whereas there is only a slim chance of seeing a strong-enough read to boost the Fed hawks.
