OPEC+ Meets: Global Week Ahead – Zacks.com

In this short 4-day Global Week Ahead, the Organization of the Petroleum Exporting Countries (OPEC) and their allies (the +) will have a lot on their minds on Tuesday. They gather via teleconference to assess the latest developments in the oil sector.

Crude oil prices have tallied two straight monthly gains (going from $61 a WTI barrel to $67). And demand for gasoline-at-the-pump is expected to rise. For example, the past U.S. Memorial Day weekend marks the start to the American summer driving season.

The recent surge in oil prices “will not go unnoticed” in this virtual gathering of OPEC +, Phillip Streible, chief strategist at Blue Line Futures, told MarketWatch.

In a note dated Thursday, May 27th, analysts at RBC Capital Markets, said the producer group will “stick with the cautious production return schedule” it agreed to in April.

But Russia is likely to “seek to accelerate the pace of the ramp up” in output.

Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman may call for “keeping the more conservative increase given the high COVID case counts in India and Japan, as well as the looming return of Iranian exports in the back half of the year,” RBC Capital Markets wrote.

That last paragraph summarizes the current constraints on global demand, succinctly.

Down the road, a potential revival of the 2015 Iran nuclear deal threatens to add a significant amount of crude supply to the global market.

Next are Reuters’ five world market themes, reordered for equity traders—

(1) On Friday, U.S. Nonfarm Payrolls for May Show Up

How fast is the U.S. recovery?

Friday’s U.S. monthly jobs report will add fuel to the debate.

In April, U.S. job growth unexpectedly slowed, possibly because of shortages of workers and raw material. Non-farm payrolls added a mere 266,000 jobs compared to predictions for more than 3 1/2 times that.

Optimism over jobs has offset concerns about rising inflation and diminishing government financial support, lifting May U.S. consumer confidence to a 14-month high.

For May jobs, a Reuters poll predicts a 621,000 rise. Strong data could again raise concerns of an earlier-than-expected stimulus unwind by the Fed.

(2) What to Make of an Expensive Chinese Yuan?

China’s yuan is at the highest since 2018 but the People’s Bank of China seems to show no discomfort with the recent gains.

That’s got markets guessing how policymakers in the world’s second-largest economy plan to navigate economic recovery, the commodity price gains and inflation pressures.

Friday’s official guidance rate — the strongest since May 2018 and set above the psychologically important 6.4 per dollar level — seemed like a tacit acceptance of a stronger yuan.

But officials have also become more vocal in recent days on pledges to crack down on forex market manipulation, warning on Friday against one-way yuan bets. They reiterated, however, there was no change to the country’s currency policy.

(3) On Tuesday, OPEC+ and Allies Meet

OPEC and its allies, the OPEC+ grouping, are expected to stick to the gradual easing of oil supply curbs at their Tuesday meeting, pinning hopes on a strong demand recovery.

Since OPEC+ decided to taper cuts by 2.1 million barrels per day in April, oil has extended its 2021 rally and is currently up over 30% and closing in on $70 a barrel.

One factor limiting oil price upside is the prospect of higher Iranian output should its nuclear deal with world powers be revived. If a deal is struck, Iran could add as much as 2 million bpd to supply.

(4) On Tuesday, the Reserve Bank of Australia Meets

The Reserve Bank of Australia meets on Tuesday and focus is on whether it will provide any hawkish hints, given a strong economic rebound and moves from peers towards slowing stimulus.

Few expect Australia to follow neighbor New Zealand, which signaled a potential rate hike in 2022. But investors are seeking clues on the RBA’s asset-purchase plans ahead of its July meeting when it is due to decide whether to expand its quantitative easing program.

Australia’s pluses? A relatively low COVID-19 caseload and rising commodity prices. China’s yuan at a three-year highs and signs of Beijing’s comfort with the exchange rate bodes well for commodity exports too. The risk? A weaker Australian dollar versus the yuan, potentially spelling higher inflation.

(5) On Tuesday, We Get Eurozone Flash Inflation Reading

Tuesday’s Eurozone flash inflation is sure to grab attention as the next European Central Bank meeting nears.

Inflation in the bloc is approaching its 2% target — the fastest in years — thanks to higher spending and base effects stemming from the 2020 oil price crash. Strong data could spark excitement or fear that a new era of inflation is dawning.

Not so fast, others argue. ECB Chief Economist Philip Lane, for one, has pushed against the inflation-is-back narrative, stressing labour markets will take years to return to pre-crisis levels and that stimulus is still needed to secure the recovery.

The data could pave the way for a lively June ECB meeting.

Top Zacks #1 Rank Stocks

With a global semiconductor chip shortage, let’s examine the top 3 large-cap chip stocks in our Zacks Rank system, at the moment.

(1) ASML Holding N.V. (ASML Free Report) : This is a $665 stock, and the market cap is $280B. They are a semiconductor equipment-wafer fabrication player. I see a Zacks Value score of F, a Zacks Growth score of D and a Zacks Momentum score of F.

(2) Lam Research (LRCX Free Report) : This is a $645 stock, and the market cap is $92B. They (once again!) are a semiconductor equipment-wafer fabrication player. I see a Zacks Value score of F, a Zacks Growth score of D and a Zacks Momentum score of D.

(3) MKS Instruments (MKSI Free Report) : This is a $186 stock, and the market cap is $10.4B. They are in the electronics-manufacturing machinery industry. I see a Zacks Value score of D, a Zacks Growth score of B and a Zacks Momentum score of C.

In light of the industries I wrote, this should be clear to you. Actual chipmakers are not benefitting, in the sense of rising earnings estimates. Companies further back in the value chain are extracting the most value out of the chip shortage.

Added to that insight, the Zacks Value scores are F, F and D. In sum, this chip shortage story is also likely priced in. The 3 stocks could see some distribution shortly.

Key Global Macro

Two key reports are jobs reports for the USA. The privately produced ADP jobs report lands on Thursday.

  • – This ADP report is a day late, this time around, due to the Monday U.S. Memorial Day holiday.
  • – The U.S. Federal nonfarm payroll report for May hits the premarket tape in the morning on Friday.

On Monday, Mainland China’s NBS non-manufacturing PMI was supposed to be 52.7, while the NBS manufacturing PMI was supposed to be 51.1.

On Tuesday, the Jibun Bank Japan Manufacturing PMI should be 52.5.

The Caixin China Manufacturing PMI for May should be 51.7.

The U.S. Markit Manufacturing PMI for May should be 61.5.

There is an OPEC+ meeting.

On Wednesday, the Fed’s Brainard gives a speech.

Total Vehicle sales for May in the USA should be running at an 18.5M annualized rate. That is high. 16M a year is more typical.

On Thursday, the Fed’s Beige Book comes out.

ADP employment change (another measure of U.S. private payrolls) should be 545K in May, after seeing 742K in April.

On Friday, Federal U.S. nonfarm payrolls should be 621K in May, after a low 266K in April. Watch for revisions further back in time than May, too.

Avg. U.S. Hourly Earnings for May should be -0.4% y/y and +0.2% m/m.

The U6 unemployment rate (a broad U.S. measure) was 10.4% in April. We get a fresh reading from May.

The Canadian unemployment rate for May should be 7.8%.

Conclusion

After this short 4-day Global Week Ahead, traders should have taken the pulse of the COVID afflicted patient, known opaquely as ‘the global economy.’

On Tuesday, OPEC+ debates and decisions will gauge the macro strength in various regions of the global economy.

They also share with us, the details on who is partnering with whom, in the post-pandemic era. Inside the oil price arena.

On Friday, the U.S. nonfarm payroll report will detail the current strength of the U.S. macroeconomy.

I think stocks have already fully priced in both sets of fundamental news.

Only true — major — macro surprises will make a difference to summertime stock prices.

Regards,

John Blank

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