OPEC announces oil production cuts

OVERNIGHT

OPEC unexpectedly announced cuts to crude oil production of more than 1 million barrels a day in a bid to boost prices.  Global oil market prices are sharply higher this morning, as fears of inflation risks stalked markets. Asian equity markets are mostly higher this morning despite the news, but US equity futures point to declines at the open. In China, the March Caixin manufacturing PMI index slipped back to 50 from 51.6 in February. The disappointing result suggests that the factory sector has seen only a modest lift from the easing of Covid restrictions.

THE DAY AHEAD

Last week saw lower market volatility and firmer global equity prices as concerns about global banks eased. Still, the focus remains on the potential effect that recent events may have on credit conditions for the wider economy. There appears limited evidence of a marked impact as yet, but it is probably too soon to tell. This week is holiday shortened in the UK and the economic calendar is sparse. However, there are some important releases internationally, including the bellwether of US conditions, the labour market report on Friday. Meanwhile, today’s data schedule is dominated by manufacturing updates.   

The March PMI manufacturing data for the UK and the Eurozone are second readings, although some of the detail for individual countries in the latter are published for the first time. The ‘flash’ releases showed UK activity at a two-month low, reflecting weak order books, albeit more positively, supply chain pressures continued to ease. In the Eurozone, the headline index dropped to a four-month low. However, the reading was only just below the 50 expansion level and an improvement on outturns seen for the most of last year. Today’s data is not expected to see any major revisions.

Today’s US ISM manufacturing report will provide new data. The overall index rose in February but was still some way below the 50 level that signals expansion. The US PMI measure rose in March, and while the two do not always move in tandem, the ISM may follow suit today. However, it seems likely to stay below the key 50 level, as like elsewhere, the pace of US manufacturing activity is running below that of services. 

Early Tuesday, the Australian central bank will deliver its latest verdict on economic conditions. It has raised policy rates by 350 basis points since last May but is expected to stand pat while it assesses the impact of those rises.

MARKETS

US Treasury and UK gilt yields fell on Friday after the lower-than-expected US inflation news. However, US yields have rebounded this morning following the OPEC announcement.  In currency markets, sterling, after moving up slightly against the euro on Friday is again higher this morning, but it has slipped against a generally firmer US dollar.