Oil rises, China cancels trade talks with US

Summary:

• Oil prices reach almost 2-month high in response to OPEC/non-OPEC meeting in Algeria

• China cancels trade talks with US but it adds it remains willing to restart negotiations under “equal and mutually beneficial context”

• Equities in Hong Kong fall, AUD and NZD lead the losses in G10, USD trades flat

There were two major stories over the weekend we would like to bring up this morning. The first one concerns the oil market and a meeting between OPEC and non-OPEC countries in Algeria. The meeting resulted in a conclusion that the cartel and its allies see less urgency to boost output next year despite mounting pressures from the US to trim prices. Let us recall some comments from Donald Trump on late Friday who tweeted that prices must be lowered rapidly. The cartel keeps expecting that the surplus will exceed demand in the following year and it sticks to its pledge to do whatever it takes to keep the market balanced. On top of that, we got some revelations pertaining to Venezuela that the country plans to increase its production to 2 mbpd by the end of this year and to around 2.5 mbpd within a year. The long-term forecast suggests that the oil demand will increase by 14.5 mbpd until 2040. In turn, Iran said that if the country’s output declined, it would be the responsibility of the OPEC and non-OPEC to balance the market. Recall that Iranian output is expected to drop when US sanctions kick in in two months. Oil prices are rallying this morning with both grades adding over 1.3% as of 6:32 am BST. The next semiannual OPEC meeting will be held on 6-7 December.

Brent oil prices are shyly approaching their crucial resistance placed slightly above $80 after the information from Algeria. The nearest support might be localized at $76. Source: xStation5

In turn, as far as the trade war between the US and China is concerned we were not offered many positive signals as the latter decided to cancel negotiations scheduled for this week adding that these talks might take place only under “equal and mutually beneficial context” not under “a threat of further duties”. Monday is also the first day when US levies on $200 billion goods imported from China have kicked in, at the same time Chinese duties on $60 billion goods have taken effect. The mixture of downbeat revelations concerning this thread has led to declines in equities in Hong Kong as the Hang Seng (CHNComp) is trading 1.6% lower as of 6:38 am BST. Note that the exchange markets in Japan and China are closed today. Deteriorated risk sentiment is also weighing on risk-related currencies so nobody should be surprised seeing all three commodity currencies (AUD, NZD, CAD) trading clearly lower this morning.

The NZ dollar is reversing from the important supply area placed nearby 0.67. Nevertheless, do notice that the price broke through the short-term trend line last week hence bulls may want to keep above this line. The Federal Reserve meeting on Wednesday could be a chance for them once the Fed disappoints markets. Source: xStation5

In the other news:

• ECB’s Ewald Nowotny claims that the central bank should consider tightening monetary policy quicker than originally planned

• According to Sunday Times PM May’s aides have discussed the possibility of a November general election where she would seek a public endorsement of a harder Brexit stance

• Sweden’s PM Stefan Lofven is likely to lose the first round in his battle to remain in power as Nationalists (Sweden Democrats) suggest they will back the opposition’s speaker candidate