Market Update November 28

OPEC, the Organisation of the Petroleum Exporting Countries, left their combined crude oil production at 30 million barrels per day overnight in Vienna, resisting the temptation to ease production in light of slumping energy prices. In a statement following the decision the group noted that while global oil demand was expected to increase in 2015 ‘this will, yet again, be offset by the projected increase of 1.36 million barrels per day in non-OPEC supply’. While not entirely unexpected given developments in recent days, the news saw the price of WTI and Brent cascade lower with both finishing the session nursing losses in excess of 6%. Combined with the plunge recorded overnight, WTI and Brent have now lost 36% and 37% respectively since June.

Eurozone M3 monetary growth expanded 2.5% in the year to October, the same rate seen in September but below expectations for an increase to 2.6%. As has been the case in the prior 29 months loans to the private sector continued to contract, declining 1.1% on year from 1.2% in September.

German unemployment fell to an all-time record low in November with a decline to 6.6% reported. The figure, unchanged from the downwardly-revised rate of October, was the lowest level seen since records began in 1992. Total unemployed fell by 14k to 2.872m, the lowest level seen in the past 23 years.

Eurozone consumer confidence was confirmed at -11.6 in November, unchanged from the preliminary estimate released earlier in the month, with the reading the lowest level seen since February this year. While the regional gauge fell, German consumer sentiment ticked higher in December with the forward-looking GfK survey rising to 8.7. The reading, higher than the 8.5 level of November and expectations for an increase to 8.6, was the highest level seen August.

German disinflationary pressures continued to build in November with consumer prices rising 0.5% from a year earlier. The reading was below the 0.7% rate seen in October and expectations for a decline to 0.6% and was the lowest level seen since February 2010. Compared to Germany who at least recorded a positive number, deflationary forces in Spain gathered intensity in November with an annual decline of 0.5% recorded. The figure was below the -0.2% rate of October and expectations for a contraction of 0.3% and was the equal-lowest level seen since October 2009.

Italian business confidence rose unexpectedly during November with ISTAT reporting an increase to 96.3. The reading, the highest seen since July, was above the 96.1 level seen in October and expectations for a decline to 96.0.

Spanish Q3 GDP was confirmed at +0.5% overnight with the annual rate also remaining unchanged at +1.6%.


The Day Ahead (AEDT)

The ASX 200 looks set to fall this morning with SPI futures pointing to a decline of 17pts on the open. While volumes will be light, something that usually lends itself to the index wafting higher, given the steep declines in energy prices overnight it will be interesting to see whether gains elsewhere, particularly the materials sector given the bounce in spot iron ore overnight, will be enough to address what will likely be an ugly session for energy producers.

The AUDUSD has given back the vast majority of its post-capex gains overnight with the pair currently fetching .8550. With no major data scheduled domestically, thin volumes and a huge data dump arriving from Japan, the USDJPY, generally a proxy for USD-strength during most sessions in Asia, will likely be the main determinant of the movements in the AUDUSD today. Support is found at .8540, .8520 and .8500 with resistance kicking in at .8565 and again above .8600.

Australian consumer credit for October will be released at 11.30am this morning. As ever given the continued focus on investor lending in housing from the RBA expect the housing component to be the centre of attention.

Regional data releases today include CPI, unemployment, household spending, industrial output, retail sales, housing starts and construction orders from Japan, building consents and NBNZ business confidence survey in New Zealand along with industrial output figures from South Korea.

A busy economic calendar this evening with inflation and unemployment data from the Eurozone, GDP from India and Canada, retail sales from Germany and Spain, CPI, PPI and unemployment from Italy , consumer spending and PPI from France along with the latest Nationwide house price index from the UK all scheduled for release. On Sunday the Swiss go to the polls to decide whether the Swiss National Bank will have to triple the amount of gold they hold in reserves. This is an event that markets rarely have to deal with – watch for volatility in spot gold today.


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