The DOW closes the week on a positive note, dragging up the S+P and Nasdaq. Traders continue to hope that the Federal Reserve (FED) will reduce rates, opening the way for more positive returns for equities. However, the Beige Book, a summary of commentary on the current economic conditions, said other things. Notably, rates will remain high, with the US Funds rate of 5.25-5.50 staying at this level for longer, and when the FED meets next time, it will be the sixth consecutive month that rates are restrictive.  OPEC is meeting over the weekend, and snippets of news are coming out to suggest that the organisation of producers will prolong supply cuts by one year in a bid to fend off increased production for the US and prospects for weakness in the global economy.  The group is currently withholding 5.87 million barrels a day, or about 5.7% of global demand. This week, we get a good read on the state of the job market in the US, with non-farm payrolls coming out on Friday. Chinese economic data remains mixed, which is a good sign that the economy is trying to find a low.  Australia's inflation rate was at 3.6% yoy in Q1 of 2024, down from 4.1% in the prior period but well above market expectations of 3.4%. The news suggests that this puts off interest rate reductions and may open the way for a rise. 

But first, OPEC. Developments in the energy sector are poised to impact the broader economic landscape. OPEC is set to meet over the weekend, with preliminary indications suggesting that the organisation of oil producers may extend their supply cuts by an additional year. This strategic move aims to counteract the US's anticipated increased production and mitigate potential weaknesses in the global economy. Currently, OPEC withholds approximately 5.87 million barrels of oil per day, constituting about 5.7% of global demand. These cuts include 3.66 million bpd which were due to expire at the end of 2024, and voluntary cuts by eight members of 2.2 million bpd, expiring at the end of June 2024. The decision to prolong supply cuts underscores the organization’s efforts to stabilize oil prices amidst fluctuating demand and economic uncertainty. The market seems content to see oil within the US80-85 band based on Brent, with the news promoting support for the commodity. We expect to see the range maintained for the next few trading sessions, albeit with a bid tone from its current level of US81.30.  

In the US, the important Beige Book indicates that interest rates are likely to remain elevated for an extended period. The current US Federal Funds rate stands at 5.25-5.50%, and it is anticipated to stay at this level for a longer duration. This projection aligns with the FED’s stance on combating inflation, even at the cost of potentially stifling economic growth. The next FED meeting will mark the sixth consecutive month of maintaining these restrictive rates. Contrary to this, traders like any data that suggests otherwise, opting to buy the index on any economic news that shows the Fed altering its course on interest rates. This week, employment data will be a major focus for investors.  The US economy added 175,000 jobs in April 2024, a deceleration compared to the upwardly revised 315,000 jobs added in March and falling short of market expectations for a 243,000 increase. The latest data underscores a significant slowdown from the brisk pace observed in the first quarter and trails behind the average monthly gain of 242,000 jobs over the preceding 12 months. Forecasts are for a conservative increase of 151,000, which is below the monthly gain; a reading under this lends support to a change in Fed policy and visa versa.

The latest inflation data in Australia has presented a nuanced picture of the economic landscape. The year-on-year inflation rate for Q1 of 2024 was reported at 3.6%, down from 4.1% in the previous period. While this decline indicates some moderation in price pressures, the inflation rate remains above market expectations of 3.4%. This persistent inflationary pressure suggests that the Reserve Bank of Australia (RBA) may hold off on reducing interest rates in the near term. Instead, the RBA might consider the potential need for further rate hikes to rein in inflation despite the recent slowdown. This morning the Melbourne Institute's Monthly Inflation Gauge rose by 0.3% in May 2024, steeper than a 0.1% gain in April to notch its highest level since January. It was the third straight month of increases. Interestingly, the December BAB is trading at 4.35%, which is the same as the cash rate offered by the RBA. This seems at odds with what the data is telling us. 

The mixed economic data emerging from China adds to the complexity. As the world’s second-largest economy, China's economic performance has significant implications for global markets. The mixed signals suggest that the Chinese economy is still navigating its way through a period of adjustment and finding a stable footing. These fluctuations in Chinese economic indicators are being closely watched by global investors and policymakers alike. Today, The Caixin China General Manufacturing PMI rose to 51.7 in May 2024 from 51.4 in April, surpassing estimates of 51.5. It was the seventh straight month of expansion in factory activity and the fastest pace since June 2022, as production grew faster amid rising new orders. This is a positive story of growth for the global economy.

What can we expect this week? The labour market report will take centre stage in the United States on Friday. Investors will also closely monitor JOLTs Job Openings, ISM Manufacturing and Services PMIs, factory orders, and foreign trade data. Globally, attention will be on the interest rate decisions from the European Central Bank. In Australia, we have GDP growth rates and expect steady growth of o.2% for the quarter. This was the ninth straight period of quarterly growth but the softest pace in 5 quarters.

On the position front, we remain … in the S+P (…, …); we have … the position. We are … at … in the ASX and have added at … at a close above … we will review the position. We are still … USD/JPY at … and at ... Currently …, the AUD/USD (US…) and AUS/CHF (…); we have just … new positions in Gold (…) and two positions in Silver (…).

Trade Focus:

Fundamentals:

As OPEC are in the news, we thought it a good idea to have a focus on Oil (Brent). The ongoing restriction in supply mentioned above, plus the summer holidays in the northern hemisphere, may present a bullish scenario …

Technical Analysis:

Technically, the picture looks interesting; apart from a brief run-up to US… in April, the trading range has been confined to …

Support              …

Resistance         …

Momentum        …