Europe to open higher after OPEC “deal”

While most of the chatter this week has been on the trials and tribulations of Deutsche Bank and OPEC, the recent data out of the US economy continues to point to a rather mixed picture with respect to US GDP growth.

While most of the chatter this week has been on the trials and tribulations of Deutsche Bank and OPEC, the recent data out of the US economy continues to point to a rather mixed picture with respect to US GDP growth.

Talk that the German government was considering some form of rescue plan for Deutsche Bank in a worst case scenario, helped the share price to post a positive session yesterday, along with the news the bank had agreed a deal to sell its Abbey Life business for just over a €1bn.

While this chatter was denied by senior German officials it would be most surprising and quite frankly reckless if there weren’t some form of backup plan in the event that help was needed if the bank required it, whatever these officials may say in public.

Oil prices also had a positive day helped by the announcement of a preliminary deal for a cut to oil production for the first time in eight years. It has been agreed that production will fall into a range between 32.5m and 33m barrels a day, however given that production in August was 33.3m barrels the cut doesn’t equate to a significant reduction, at a time when the market is already oversupplied.

That being said oil prices rallied strongly given the low expectations of any form of deal, however it remains likely that further upside may be difficult, if for all the talk, the detail is found wanting.

This is because the final details have yet to be agreed and the Iranian oil minister said that Iran wouldn’t have to freeze production, which means other members will. A committee has been set up to deal with that and is likely to be a tall order if history is any guide. Ultimately the proof of the pudding will be in the eating and if history is any judge, the detail will fall short.

If anything this looks like another attempt to keep a floor under prices without actually having to do anything. For now it seems to be working, the ultimate in jaw-jaw.

In addition the full details won’t be known until the full OPEC meeting at the end of November, which means another two months of capacity output, of over 33m barrels per day.

There is also the not insignificant matter of persuading non OPEC members like Russia, who are not party to the deal, to come on board. Good luck with that one!

For all of the scepticism around last night’s agreement, accord, understanding whatever it is that OPEC members have agreed, it has had a positive effect on markets in Asia and looks set to spill over into Europe as well as European markets look set to open significantly higher this morning.

Despite further interventions from senior Bank of England officials that further monetary policy easing remained on the cards , the pound held up fairly well yesterday, and today’s latest lending data is expected to show that UK consumers appetite for borrowing held up fairly well in August.

Mortgage approvals are expected to come in at 60.2k, while net consumer credit is expected to rise to £1.4bn from £1.2bn.

This month’s decision by the Federal Reserve to hold off on a rate rise may have split the committee but given the GDP data seen so far this year it isn’t hard to understand why the central bank is so reluctant to push rates higher.

While the jobs market continues to look fairly resilient the economic data elsewhere continues to look patchy, and even though US consumer confidence hit its highest levels in 9 years in September you wouldn’t know it to look at the spending and retail sales data from the last few months. As a forward indicator of US GDP growth it’s been of little use in recent quarters.

Today’s final iteration of Q2 GDP data is also set to confirm that US GDP has continued on its downward trend since the end of Q1 2015, when it was up at 3.3% on an annualised basis. Expectations are for a number revised up from 1.1% to 1.3%, but still below the 1.6% seen in Q1.

Personal consumption is expected to be confirmed at 4.4%, though in previous numbers this strong showing hasn’t been reflected by similar decent numbers in either durable goods or retail sales.

Weekly jobless claims continue to outperform with a rise to 260k from 252k expected.

The August trade balance is expected to widen out to -$62.2bn from -$58.8bn in July. 

EURUSD – the euro appears to be consolidating between two converging trend lines with support at 1.1150 and resistance at the 1.1300 area. A break either side could well trigger a sharp 200 point move in either direction.

GBPUSD – the pound has managed to hold above the 1.2900 level for now, with a potential break targeting the July lows just below 1.2800. We need a rebound through the 1.3120 level to stabilise, and break the cycle of weakness.

EURGBP – the key reversal day seen this week after the peaks at the 0.8720 area, suggests we could be susceptible to a break lower on a move through the 0.8600 level, for a test back to the 0.8480 area. A break through the 0.8730 area targets a potential move towards 0.8800.

USDJPY – continues to look weak with a retest of the 99.50 support a distinct possibility. While below the 103.00 area the prospect of a move through 99.50 towards 96.00 remains.

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