Trading with point and figure

- Digesting FOMC minutes, focus on OPEC and NATO meetings; UK Q1 revised
GDP, US Trade, Claims and Inventories, BIS FX Code of Conduct, SARB
rate decision, US 7-yr auction also on tap; Ascension day holiday

- FOMC minutes: few surprises, balance sheet reduction set to start this
year, June hike contingent on incoming data confirming Q1 dip was
'transitory'

- OPEC meeting: 9-month extension already discounted, focus on exemptions,
and usual intricacies of terms and conditions

- US Trade Balance: consensus looks for virtually unchanged deficit,
fairly high risk of an outlier due to seasonal factors

- Charts: WTI Oil futures, US Dollar Index, Fed rate hike probabilities

..........................................................................

********************
** EVENTS PREVIEW **
********************

A busier day for US statistics (Goods Trade Balance, Jobless Claims, Wholesale Inventories, KC Fed Manufacturing) accompanies the revised/detailed Q1 GDP readings in the UK and Spain. However it is the policy / political events which dominate the schedule, with the much anticipated OPEC meeting accompanied by the NATO summit, over which the spectre of the Manchester terror atrocity will cast a long shadow. After much lower than expected CPI data yesterday, South Africa's SARB will feel more than comfortable in following the Bank of Korea overnight in keeping rates on hold, while the BIS today launches the second stage of the FX Code of Conduct, details of which can be found in BIS/RBA's Debelle's update in February http://www.bis.org/review/r170201a.pdf. The US also concludes this week's refunding operation with $28 Bln of a new 7-yr Treasury, with corporate issuance week to date running ahead of expectations at $35.9 Bln, but thus far doing little more than exercise some minor upward pressure on yields. But given today's Ascension Day holiday, the start of Ramadan tomorrow, and Monday's array of holidays in China, UK and the USA, the flow of supply will likely turn to little more than a trickle over the next few days, even if there may be a small flurry of more opportunistic issuance to soak up end of month flows next week. Today's more detailed UK Q1 GDP data are seen unrevised at 0.3% q/q 2.1% y/y, with slower private consumption and Services output (both forecast at 0.3% q/q) the key factors in the marked slowdown, which may or may not have been in part a function of Easter timing effects. Gross Fixed Capital Formation and Business Investment will attract particular attention, and are forecast to have dipped by by 0.2% q/q and risen by 0.3% q/q respectively, which would be a respectable outturn given the multitude of uncertainties due to the upcoming Brexit negotiations. Markets will also be digesting the FOMC minutes, which for the most part were unsurprising, but worth noting were 1) the contingency for a June rate hike on incoming data confirming that the Q1 dip in growth and inflation was 'transitory', 2) that officials "expressed concerns that a possible easing of regulatory standards could increase risks to financial stability", 3) similar concerns about parts of the real estate market, 4) expectation that balance sheet reduction will likely start this year, and 5) broad support for the staff proposal on the mechanics of reducing reinvestment. Under the staff plan, a limit would be set on the amount of securities that are allowed to 'roll off' the balance sheet every month, with the initial cap set at a low level, but subject to review and increase every quarter. Last not least, the NY Fed's Liberty Street blog looks at how post GFC regulation has damaged Corporate Bond Liquidity Provision http://libertystreeteconomics.newyo...s-and-corporate-bond-liquidity-provision.html .


** U.S.A. - April Goods Trade Balance / Initial Claims **
- The advance Good Trade Balance is expected to be little changed at $-64.6 Bln vs. a final $-64.2 Bln in March, though the risk of an outlier relative to forecasts would appear to be quite high, given seasonal and Easter holiday effects. As such, m/m changes in Exports and Imports are probably best not over-interpreted in terms of extrapolating underlying trends, and prospects for what net exports may contribute or deduct from Q2 GDP. While there is an emerging debate on the FOMC about underlying inflation trends (see Evans comments and FOMC minutes), the FOMC is no doubt that labour demand remains very robust, and today's Initial Claims are expected to confirm that with a modest rise to 240K from last week's near 44 year low of 232K.

** OPEC meeting **
- Petroleum markets are fully discounting a 9-month extension to the current OPEC-NOPEC production cut agreement, with many wondering if the group has any rabbits to pull of its hat to mitigate the risk of a buy the rumour, sell the fact reaction. It is not actually certain that the extension will be 9 months rather than six, even if the noises have been in that direction, or if any other Non-OPEC countries do sign up, they are at best likely to be very marginal producers such as Tajikistan, and per se more an optical addition than 'game changers'. As ever, it will the finer details on exemptions and other Terms & Conditions which require particular scrutiny. According to 'sources' yesterday's OPEC/NOPEC ministerial monitoring committee (comprising OPEC members Algeria, Kuwait, Venezuela, current OPEC president Saudi Arabia and Non-OPEC producers Russia and Oman_ made a recommendation to keep the production cuts "at the same level". Reuters energy analyst John Kemp's analysis of this OPEC meeting and whether it has had a material impact on oil price is well worth a read: "OPEC meets again but has it had an impact on oil prices?" https://www.reuters.com/article/us-opec-oil-kemp-idUSKBN18K2G1

and where do the various countries stand> - summary via Reuters Global Oil Forum:

***OPEC:***
{SR} SAUDI ARABIA backs a 9 month extension to current supply cuts. Energy minister al-Falih has talked to several countries including Norway, Turkmenistan, and Egypt to join-in the output restraint effort.
{KU} KUWAIT backs a 9 month extension. Oil Minister Almarzooq: “Not everybody” is on board to agree to 9-month extension”, “Some of the countries have agreed to extend for 6 months subject to a revision in November for an additional 3 months.” Deeper production cuts than those agreed last year are not “necessary right now”.
{UAE} UAE supports extension of oil production cuts, Energy Minister Suhail Mazrouei says on Twitter. Oil minister indicates that extension can be either 6 or 9 months.
{IA} IRAN no official position, will go along with what other decide (as long no change to its status) in terms of extension of cuts.
{IQ} IRAQ initially supported extension of 6 months, now backs 9 months after discussion with Saudi.
{AI} ALGERIA supports extension of at least 9 months, not ruling out the possibility of more.
{ED} ECUADOR supports extension of at least 9 months.
{AO} ANGOLA back extension of cuts.

***Non-OPEC:***
{RU} RUSSIA back a 9 month Extension to current supply cuts.
{OM} OMAN not opposed to nine-month extension of oil supply cuts, wants some discussion before backing 9-Month Cuts.
{MX} MEXICO supports extension of at least 9 months. Contribution still comes from natural decline in output.
{KZ} KAZAKHSTAN has not delivered on promised cuts given ramp-up of its Kashagan and Tengiz megaprojects - unlikely to deliver supply in an extended round of cuts.
{NO} NORWAY's oil ministry said later on Tuesday it had no plan to join cuts but had a good dialogue with OPEC.

TENTATIVE PROGRAMME FOR TODAY'S OPEC MEETING (MAY 25)
09:00 BST Morning session begins
14:00 BST Afternoon session begins
16:00 BST Joint Press Conference by President of the OPEC Conference, Minister of Energy of the Russian Federation, and OPEC Secretary General
from Marc Ostwald
========================== ** THE DAY AHEAD ** ===========================
 
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