Daily Market Color

Oil Prices Surge Following Surprise OPEC Agreement, Boost U.S. Markets

US markets were tepid as the trading session opened today, receiving lackluster economic data at the onset that showed durable goods orders unchanged in the month of August.  The figure was higher than the -1.5% expected, but was partially offset by a downward revision of July’s level by 0.8%, from 4.4% to 3.6%.  Continued weakness in manufacturing was also evident in the monthly report on shipments of capital equipment, which declined for the fourth consecutive month.  Throughout the day, speeches from six Fed officials, including testimony from Janet Yellen during a congressional committee hearing, provided color surrounding the central bank’s rate hike intentions for the future.  The speech from Minneapolis Fed President Neel Kashkari touched upon the potential for an extended period of lower interest rates, noting that while jobs have been increasing at a healthy pace, the corresponding inflationary growth has yet to be seen.  Yellen echoed a similar tone when she stated that the Fed did not have a “fixed timetable” for any rate increase, but did recognize the need to closely track the economy for any signs of overheating.  In addition, she put forth her recommendation that large U.S. banks adhere to more rigorous stress tests on an annual basis, essentially increasing the banks’ capital requirements.  The comments pushed financial stocks down on the day, but overall, the major equity indexes remained in the green, boosted by a surge in oil prices after a surprise production-cut agreement was apparently reached amongst OPEC members.  With the OPEC gathering in Algiers coming to a close today, investors had initially predicted that any sort of deal would not be inked until the group’s next meeting in November at the earliest.  However, for the first time in eight years, OPEC members reportedly agreed to a supply freeze and set the level at 32.5 million barrels a day, nearly 750,000 barrels lower than August’s daily production.

For the third day in a row, European stock markets were influenced by news surrounding Deutsche Bank, whose shares rebounded two percent higher today.  In an interview with news outlet Bild, CEO John Cryan reassured the public that recent capital concerns for the company were actually not an issue at all, and the $14 billion figure proposed by the Justice Department is well above the level that will finally be agreed upon.  In addition, Deutsche Bank announced the sale of its U.K. insurance unit to Phoenix Group Holdings today for 935 million pounds ($1.2 billion), providing a small bump to its capital base.  Overall, major European indexes closed up 0.7% for the day.  In Asia, markets closed mixed after export stocks were dragged lower by a strengthening of the Yen against the US dollar.  At its highest level, the Yen moved to 100.23 per dollar before settling back towards 100.75 per dollar.

All three major U.S. stock indexes are currently up 0%-0.50% on the day while Treasury yields/swap rates are basically unchanged, with the 10-year yield remaining at 1.56%.  The rally in oil produced an increase in WTI and Brent crude prices of over 5%, leaving the price per barrel at $46.75 and $48.35, respectively.


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