Daily Market Color

Oil Tumbles Despite OPEC Agreement on Production Cuts, Stocks Rise with Retailers

The OPEC meeting held this week in Vienna concluded today with an agreement to extend the existing supply deal an additional nine months, formally agreeing to the approach several participating oil ministers had expressed leading up to the meeting.  Crude oil futures declined following the result, however, as many investors were hoping for a further expansion/extension of the cuts or the addition of more producers to the agreement.  Rising production in the US remains a central hurdle in achieving the price stability goals of the plan, though Saudi Oil Minister Khalid Al-Falih confirmed the faction’s openness to exploring “further interventions” if needed.  Both WTI and Brent crude are currently down more than 5% on the day to $48.70/barrel and $51.25/barrel, respectively, reversing a 1% rise at the beginning of the session.   

US economic data releases on the day yielded mixed results, beginning with a widening of the nation’s goods trade deficit in April.  As reported by the Commerce Department, the US trade gap increased $2.5 billion to $67.6 billion last month, with further weakness in exports the main culprit, as international demand for vehicles and consumer goods dropped substantially. Conversely, imports rose 0.7% in April, supported by increased orders of consumer goods and agriculture.  Also released today were advance indicators of retail and wholesale inventories, both of which fell 0.3% last month.  Finally, weekly initial jobless claims rose by 1,000 last week to a seasonally adjusted 234,000 pace (237,000 expected), providing further evidence of a labor market near maximum employment.  The four-week moving average of initial claims correspondingly fell to 235,250, once again hitting a new low mark in the past 44 years.  The number of Americans continuing to receive jobless benefits totaled 1.92 million for the week ended May 13th, up 24,000 from the prior seven days.

All three major US stock indices posted daily gains, between 0.3%-0.7%, as the S&P 500 touched a new record high, boosted by retail companies whose share prices jumped after better than expected earnings reports (BBY +22%).  Treasurys held within a tight range throughout the session, with yields/swap rates up 1-2 bps across the curve.  The yield on the 10-year note is currently trading just above 2.25%, roughly 8 basis points lower than the level one month ago.  The US dollar rose marginally on the day against major currencies, stemming a recent decline which saw its value fall to pre-election levels.

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