OPEC Meeting: No agreement on production ceiling

Daily Analysis - 03/06/2016

Oil trades flat above $49 as OPEC fails to reach an agreement to freeze production


Oil prices were little changed yesterday despite the hype surrounding the OPEC meeting in Vienna. While no agreement on production caps were agreed upon, Saudi Arabia made a verbal promise not to flood the market with more oil. The weekly crude oil inventories report was also released yesterday which showed that the US commercial stockpiles fell 1.4 million barrels, less than the expected 2.7 million.

UK Construction PMI eases for the second consecutive month

The Purchase Managers index on UK construction activity released by Markit yesterday showed that activity in the sector slipped by 0.8 points to 51.2 in May. In April, UK construction PMI eased back to 52.0. May's construction PMI marks a second consecutive month of decline in activity in the sector. Construction firms reported that output growth was easing to the weakest level in nearly three years and also incoming work orders were falling for the first time since April 2013. The construction PMI survey participants noted however that they were optimistic about growth outlook in the sector. Markit's construction PMI report also made a note that businesses in the construction sector were particularly concerned about the detrimental impact on business on the uncertainty surrounding the June 23 EU membership referendum.


ADP private payrolls rise 173k in May

Private payrolls firm, ADP reported the monthly private payroll employment change yesterday. Private sector companies in the US added 173k new jobs to the economy. This was higher than April's 166k upward revised figure. Overall, ADP payrolls showed that business hiring in the private sector continued strongly, rising for the second consecutive month after the ADP report fell below the 200k mark in April. However, analysts were expecting to see a print closer to 178k which was missed. The ADP payrolls data, although not an accurate indicator to the NFP, is still regarded by some as a gauge of what to expect from the official figures. The official jobs data will be published today and economists are expecting to see the US adding around 160k jobs in May.


ECB leaves minimum bid rate unchanged

The European Central Bank, at its monetary policy meeting yesterday left the ECB's minimum bid rate unchanged at zero percent and announced the start of its corporate bond purchase program. The euro was muted to the news released, awaiting more details from Mario Draghi's press conference 45 minutes later. In the press conference, the ECB president, Mario Draghi said that inflation was likely to remain low in the few months but said that he expected inflation to tick higher into the second half of this year. Draghi also said that the Eurozone was showing signs of economic growth progressing but that the recovery could take time.


May jobs report: A factor in Fed's June decision

The monthly nonfarm payrolls report for the month of May will be released today at 1230 GMT by the US labor department. Economists are looking at monthly employment change of 160k - 159k an almost same pace of change as in April's 160k jobs. On the unemployment rate, expectations are building up for a dip back to 4.90% from April's 5.0%. Today's jobs report will be especially important ahead of the Fed's June 14-15 meeting where the FOMC voting members will decide whether to hike interest rates or not. On the wage growth, expectations remain soft, but with limited downside risks. Overall, a match of the estimates is more than enough to keep the rate hike bets to the upside, but in the event of a slip in the estimates it could send the dollar weaker strongly as the markets will start to call off June rate hike.


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