Trading news

Crude oil prices rally amid unexpected OPEC deal

- Equity rally may further strengthen after OPEC members stated that they will unanimously support an output reduction

- We nonetheless remain cautious on the eventual effects of an actual trim 

- JPY may further weaken in reaction to the combined effects of the OPEC cut which will drive investors towards higher yielding assets and a worse than expected drop in retail sales 

- We believe that the BoJ will not increase stimulus before properly assessing the effects of its latest measures


In Asia, equities rallied strongly this morning following a positive lead from Wall Street and a jump in crude prices after OPEC members said that they will unanimously support an output reduction. After months of heated debate, OPEC ministers have finally found common ground as they reached a preliminary agreement to cut production to a range of 32.5mio to 33mio barrels a day (in August OPEC production reached 33.69mio barrels a day). Crude oil prices reacted sharply yesterday amid the announcement of the pre-agreement with the West Texas Intermediate jumping more than 6% to $47.20 a barrel and the Brent crude testing the $49 level. However, even if it is a good news for oil prices, this is just a pre-agreement in which OPEC members agree to trim production without actually specifying who will take the cut or how it will be divided. Therefore, we remain cautious concerning the effects of an actual trim in production, especially in view of the OPEC’s history of consistently failing to reach a consensus. 


The Japanese yen was the worst performer amongst the G10 complex as it fell 0.85% against the US dollar. USD/JPY rose to 101.75 in Tokyo from 100.69 in reaction to the combined effect of the OPEC deal, which drove investors towards higher-yielding assets and a sharp drop in retail sales. Retail sales unexpectedly fell in August for the first time in three months, contracting 2.1%y/y, while the market was expecting a reduction of 1.7%. This is pretty dire news for the country as most of its growth is generated by consumer spending. This news will also drag inflation lower, which could encourage the BoJ to further ease its monetary policy. However, given the ineffectiveness of the multiple easing measures implemented over the past few months, we doubt the central bank would dare to increase stimulus before properly assessing the effects of its most recent measures announced at its on September 21st.


Equities were buoyed in overnight trading with all Asian regional markets trading in positive territory. In Japan, the Nikkei was up 1.39% and the broader Topix index rose 0.94%. In mainland China, the Shanghai and Shenzhen Composites were up 0.30% and 0.38%, while offshore the Hang Seng edged up 0.04%. On the commodity side, natural gas rose 0.63%, iron ore was up 1.90% and copper gained 0.90%.


Today traders will be watching the unemployment rate from Denmark; retail sales and CPI from Spain; unemployment rate from Germany; mortgage approval from the UK; consumer confidence from the Euro zone; CPI from Germany; wholesale inventories, personal consumption, core PCE, GDP and pending home sales from the US.

Thursday, 29 Sep, 2016 / 8:30

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