Oil N' Gold - Resources for Serious Traders
Oil N' Gold Focus Reports
Sentiment Lifted by Strong ISM Manufacturing Index Print E-mail
ONG Focus | Insights | Written by Oil N' Gold | Wed Jun 01 16 21:16 ET

Wall Street recovered from early losses and ended the day largely flat, driven by better-than-expected US ISM manufacturing index. However, US dollar retreated, especially against antipodean currencies. AUDUSD and NZDUSD rose +0.86% and +0.4% respectively on encouraging macroeconomic data. Australian GDD expanded +1.1% q/q, The fastest pace since March 2012, in 1Q16. This was markedly stronger than an upwardly revised +0.7% in the prior quarter. Meanwhile, New Zealand’s terms of trade index jumped to +4.4% q/q in the 1Q16, following a -2% contraction in the prior quarter. Energy prices were mixed. While the front-month WTI crude contract slipped -0.18%, the Brent contract tested US$50/bbl again before ending the day at US$49.72/bbl, up +0.06%. The latter was boosted by rumors that the OPEC would revise output quota at the meeting later this week. Precious metals fell across the board with the Comex contracts of gold and silver losing -0.24% and -0.41%, respectively. For PGMs, the Nymex contracts for platinum and palladium dropped -0.87% and -0.08% respectively.

The industry-sponsored API estimated that crude inventory rose +2.35 mmb in the week ended May 27. Cushing stock fell -1.03 mmb. For fuels, gasoline and distillate stockpiles declined -1.48 mmb and -1.15 mmb respectively. The DOE/EIA report due today probably shows a -2.49 mmb decline in crude inventory. Gasoline and distillate stockpiles might have slipped -0.89 mmb and -0.1 mmb respectively. On a separate note, hopes on a production quota amongst OPEC members revived as the cartel meeting is scheduled today. An OPEC delegate noted that Saudi Arabia, the biggest producer and exporter of the cartel, is considering supporting an idea of putting a ceiling on the group’s production. Yet, we do not expect anything concrete would be announced.

The US ISM manufacturing index surprisingly gained +0.5 point to 51.3 in May. Looking into the details, the new orders index edged down -0.1 point to 55.7 and the employment index stayed at 49.2. The price paid index rose to 63.5, the highest level since 2011. Meanwhile, the Markit PMI reading was revised higher to 50.7, from the flash reading of 50.5, in May. On the construction sector, spending surprisingly dropped -1.8% m/m in April. The latest Beige Book, prepared by the Minneapolis Fed, suggested that all 12 districts surveyed reported "modest economic growth". As noted in the report, "several Districts noted that contacts had generally optimistic outlooks, with firms expecting growth either to continue at its current pace or to increase". On the job market, "employment grew modestly since the last report, but tight labor markets were widely noted; wages grew modestly, and price pressure grew slightly in most districts". We believe the developments depicted in the report should be consistent with hopes of a Fed funds rate hike in June/July this year.

The focus of Thursday is undoubtedly ECB meeting. We, as well as most market participants, do not expect new measures to be announced. Yet, we believe policymakers would reiterate the effectiveness of policies adopted, the availability of more policy options and the promptness of action when needed. The central bank would also discuss the risks of Brexit. In the US the ADP employment report will be closely watched as this would give some hints on the all important employment report for May, due Friday. The number of payrolls probably increased +170K in May, up from 160K addition a month ago. The unemployment rate probably stayed unchanged at 5%.


Latest Analysis from this Author