OPEC happy about shrinking inventories, Latin American politics go haywire, and an inauspicious first quarter for Chinese bond defaults.
OPEC Optimism
OPEC Secretary-General Mohammad Barkindo cited shrinking global oil inventories as a sign to be “cautiously optimistic that the market is already rebalancing.” Crude is coming off its best week of the year, which saw prices buoyed as oil-producing nations mulled extending their output cuts beyond June and a bigger than expected decline in U.S. gasoline stockpiles. Russia, the largest non-OPEC nation that has agreed to cap production, announced that output fell to 11.05 million barrels per day in March. Meanwhile, Iraqi supplies are in danger of being disrupted amid a territorial dispute around a field that contains as much crude as all of Norway.
Political Turmoil Abounds
Even as Brexit begins, chaos across Latin America and South Africa is reminding investors where political risk most often resides: in emerging markets. Venezuela’s top court reversed a prior decision that took away power from the legislative branch, a move that may provide support for the nation’s battered sovereign bonds. Paraguay’s congressional building was literally set on fire Friday night amid anger over the upper house’s push to let President Horacio Cartes stand for re-election. Over in South Africa, the parliamentary speaker says she’s considering a request to bring a non-confidence motion to the floor after President Jacob Zuma’s large-scale cabinet changes last week.
PBOC Tightens as Defaults Swell
On Saturday, the People’s Bank of China announced that the interest rate charged on overnight standing lending facility loans had risen by 20 basis points to 3.3 percent as of Mar. 16, the day after the Federal Reserve hiked its benchmark policy rate, and said that it injected nearly $122 billion yuan into the financial system to via this mechanism to meet the liquidity needs of small-to-medium sized institutions. The rates on seven-day and one-month loans were also hiked by 10 basis points each, to 3.45 and 3.8 percent, respectively. In a statement following its quarterly meeting, the PBOC pledged to keep liquidity conditions and the yuan basically stable as it continues to promote “reasonable” credit growth and financial liberalization. The moves come as more restrictive liquidity conditions have led to the highest number of first-quarter defaults for Chinese corporate debt.
PMI Day
This morning, we’ll get a host of updates on the state of the manufacturing sector across Asia Pacific nations, including Japan, South Korea, Indonesia, Vietnam, Malaysia, Philippines, and Thailand with the release of purchasing managers’ indexes for March. Official Chinese manufacturing and non-manufacturing PMIs released late last week both signaled a pick-up in the rate of growth of both sectors, with the former hitting its highest level in nearly five years. Elsewhere, Australian retail sales are expected to rise 0.3 percent month-on-month in February.
U.S. Stocks Slip
U.S. stocks and Treasury yields moved lower on Friday in a soft end to a terrific quarter, the best for the S&P 500 index since 2015. Politics will be front-and-center – again – in the quarter to come, with investors focused on any news on pro-growth fiscal policies out of Washington, D.C. and the results of the French elections.
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