Oil slides on fears for global demand, despite production cuts

The oil price slid 4% to $69.4 per barrel on fears that promised OPEC+ production cuts wouldn’t be enough in the face of weaker demand. Gold continues to flirt with all-time highs. Bond yields are moving down to levels seen over the summer, helping to lower mortgage rates and boost activity in the property market. Equity markets marked time ahead of key labor market data.

TODAY’S MAJOR NEWS

US added fewer jobs in private sector survey

More welcome news for the Fed, looking for signs of a softer labor market. ADP’s private survey reported that the US added 103,000 jobs in November, less than the forecast 130,000, and only slightly below a re-stated 106,00 for October (revised lower from 113,000). That’s more evidence of a cooling labor market, ahead of jobless claims numbers tomorrow (seen rising week-over-week) and payrolls on Friday (seen rebounding from a weak October figure).

Bank’s push back on higher capital requirements

Leading bank CEOs criticized controversial capital requirements proposed by the Federal Reserve in a Congressional hearing. Lawmakers in both parties debated how the proposed rules could be amended before they go into effect. Banks argue that the need to hold more capital in reserve will limit their ability to lend, and so limit economic growth as businesses in particular would see credit limited. “Hopefully it’s going to look very different before it gets promulgated,” noted Republican Senator Thomas Tillis. “We hope the Federal agencies will be open to changes and will review the industry’s comments thoughtfully,” added Morgan Stanley CEO James Gorman.

Mortgage applications and refi’s rise as mortgage rate dips

There are signs of life in the moribund US property market, prompted by a continuing decline in the average 30-year mortgage rate from 7.37 to 7.17% in one week, and down from a peak of 7.90% on October 20th. MBA mortgage applications rose 2.8% week-over-week for the week ending December 1, the fifth straight weekly increase. Mortgage re-financings rose 13.9% week-over-week.      

Oil prices fall despite production cuts and US inventory declines

Crude fell over 4% in morning trade, to $69.3 per barrel, the lost level since June – despite the best efforts of OPEC+ to boost prices by announcing further production cuts. High level of oil production, notably in the US, together with forecasts for weaker global growth, are likely explanations for price weakness.

The US Department of Energy reported a 4.63 million barrel (bbl) decline in crude oil inventories this morning, for the week ending last Friday, larger than expected but coming after six straight weeks of crude oil builds. Overall, inventories of 445 million bbl’s, are up close to 10% year-over-year and well within the last three years’ range. Gasoline stocks saw a 5.4 million bbl build, also above expecations but within the three-year range

US trade deficit widens on rising imports and falling exports

The October US trade deficit came in very close expectations at at $64.3 billion, up from $61.2 billion in September. US imports rose 0.2% in October to $323 billion, while exports fell 1.0%.

TODAY’S MAJOR MARKETS

Russell 2000 leads in weak markets

• The Russell 2000 was today’s market leader, up 0.4%, while the S&P 500 was off 0.2% and the Nasdaq was off 0.4%
• Global equity markets were higher overnight, led by Nikkei 225 up 2.0%, the Dax up 0.8%, and the FTSE 100 up 0.3%
• The VIX, Wall Street’s fear index, fell back to 12.7

Bonds yields fall, Dollar rallies

• The rally in US bonds continues, with 2- and 10-year yields falling to 4.60% and 4.12%, respectively.
• 10-year TIPS index-linked yields fell continued to fall under two percent, down to1.98%
• The dollar index rose 0.1% to 104.2 (the year-to-date high was 106.65)
• Versus the dollar, Sterling, the Euro, and the Yen were all off 0.2%

Oil falls sharply

• Oil prices fell sharply, down 4.0% to $69.3 per barrel
• Gold prices rose 0.5% to $2,045 per ounce, while Silver prices fell 1.1% to $24.3 per ounce
• The feed grains are somewhat surprisingly sustaining a decent rally so far this week, led by a wheat recovery from lows as the market notes a string of flash sales of hard red winter wheat to China

Analysis by Matt Zeller, Commodities Analyst: Matt.Zeller@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com