OPEC Remains Indecisive

Daily Analysis - 07/12/2015

Energy Prices Predicted to Drop Even Further


Amid speculation of a possible output cut, the OPEC largely disappointed market participants after the group decided to let members decide on their own production. The meeting was very tense, running well past the expected timeline as members clashed on policy as the fractures between the OPEC states widened further, indicating that the oil glut is set to persist with prices plunging even further.

OPEC Meeting Results

OPEC members on Friday opted to leave prevailing policies unchanged, unwilling to set a target for the groups output amidst widespread disagreement amongst members. The cartel meeting ended in bitterness after Iran stated that it would not consider any production cuts until it restores output that had been lost during the years of export sanctions over its questionable nuclear program. The OPEC Secretary General Abdullah Al-Badri said that members could not agree on any new figures as they could not predict how much oil Iran would add to the market next year. Iran reiterated it would boost production by at least one million barrels per day once sanctions are officially lifted, adding to oversupply conditions. Without curbs elsewhere, this would add to the global glut, as the world is currently consuming up to two million barrels per day less than it is producing.


Jobs Rise in the US

Payrolls in the US rose by 211,000 in November, lower than October’s 298,000 and surpassing estimates of 200,000. The gains were primarily attributed to construction hiring, which touched the highest level since early 2014, and a healthy but steady pace of hiring in retail, health care, and leisure and hospitality companies. The unemployment rate remained steady at 5.00% with counts of discouraged workers and part-time employees edging higher from 9.80% to 9.90%. Wages had a small uptick with average hourly earnings rising 4 cents corresponding to a yearly rise of 2.30%. Aside from these figures, labor force participation managed to climb off of multi-decade lows to 62.50%, although structural unemployment remains a concern in the lead up to the FOMC meeting. Nevertheless, the data released helps build confidence that an upcoming rate hike is increasingly probable considering the strength in job creation.


German Economy Advances

German Factory orders climbed by 1.80% in October, exceeding September’s contraction of -0.70% while beating analyst estimates of 1.20%. New orders in the Euro Area showed the greatest gains following an increase of 2.40% echoed by a rise in domestic and foreign orders which increased by 1.70% and 1.80% respectively. Consumer goods orders jumped 9.20% and domestic investment goods demand rose to 4.20%. Increasing immigration, low unemployment, solid wages and low interest rates set by the ECB have improved private consumption conditions in a sign that the loosening of policy is starting to show results. By cutting the deposit rate even further to 0.30%, the latest shift in strategy from the ECB shows that the Central Bank is committed to improving underlying fundamentals and spurring growth in monetary union. The outlook remains sticky however with forecasts for inflation revised lower with 2016 inflation expected to print at 1.00% followed by 1.60% in 2017.


Canadian Data

The Canadian economy shed 35,700 jobs in November according to the latest employment figures in a sign of a reversal from the prior month’s gains in job creation likely generated by October's Federal elections. A consensus of analysts had estimated the country would cut 10,000 jobs last month and for the unemployment rate to hold firm at 7.00%. The worse than expected drop in jobs helped nudge November's unemployment rate up by 10 basis points to 7.10%. Statistics Canada also released figures showing the country's trade deficit accumulated to $CAD 2.76 billion in October, an increase from the revised $CAD 2.32 billion deficit recorded during the previous month. October's exports fell by 1.80% while imports slid by 0.80%. However, the one silver lining remained manufacturing with Canada’s Ivey PMI rocketing higher in November, rising to 63.6 after exceeding median estimates of 55.3 the prior month’s figure of 53.1.


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