Rally in Oil Outweighs IMF’s Downbeat Growth Forecast

US stocks are rallying while Treasury yields are trading higher across the curve as gains in oil overshadowed the IMF’s downward revision to its global economic forecast.  Both WTI and Brent crude advanced over 3% ahead of Sunday’s meeting between OPEC and other major producers to discuss a potential supply freeze.  An Interfax report out today said that Saudi Arabia and Russia may have already reached a supply agreement, but the Russian energy minister would not confirm or deny this.  The Energy Information Administration announced yesterday that US shale output is expected to drop to 4.84 million barrels/day in May, the lowest levels in nearly two years, signaling the global oversupply may slowly begin to normalize.
 
The International Monetary Fund downgraded its world growth forecast for the fourth time in the past year.  The IMF cited China’s slowdown, low oil prices, and ongoing weakness in advanced economies as the main drivers behind the lower estimate.  In its latest World Economic Outlook, the IMF said it expects the global economy to grow only 3.2% this year, 0.2% lower than its January forecast.  The IMF also downgraded the outlook for all major advanced economies, including the US, Canada, the EU, UK and Japan.  The IMF also warned of severe economic and political damage if Britain votes to leave the EU during the June referendum. 

US economic data releases remains light, but markets have plenty to digest between corporate earnings, Fed speak, and both sovereign and corporate new issue supply.  The US Treasury kicks off three days of debt auctions with today’s $24 billion three year note offering.
 
All three major US stock indexes are currently trading up around 0.50%, while Treasury yields and swap rates are two to four bps higher across all major maturities.