OPEC Reaches Oil Cut Agreement

US stock markets finished November with a bang. The Dow Jones and S&P 500 both made new record highs with the Dow closing the session 1.4% higher. The Nasdaq 100 struggled to make back yesterday's losses but closed 0.9% higher with both Apple (AAPL) and Facebook (FB) closing over 1% higher. Some of the market optimism was related to the increasing likelihood that some form of tax reform bill will make it through the senate. Gold was sold off as part of the general risk-on sentiment, coming close to a multi-month low. US bond prices are back near recent lows, with the five-year bond reaching a seven year low in price (high in yield). The ten-year yield, on the other hand, still hasn't surpassed the post-election highs. This flattening of the yield curve is indicating that the market expects short term rates to increase as the cash rate is increased but long-term inflation expectations remain low.

Oil was relatively flat overnight despite OPEC reaching a new agreement to extend the production cuts until the end of 2018. This represents a nine-month extension on the current agreement and is certainly a bullish signal for oil. Although oil inventories have been moving lower over the last six-months, storage levels are still above their five-year average. Markets were broadly expecting this announcement, which explains the lacklustre reaction in the oil price, although energy stocks (based on the XLE ETF) climbed 1.5%.

ASX 200 futures are currently up 22 points on the back of the strong leads from the US.  

Data Releases:

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This article was written by William O'Loughlin – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.