Happy 2017! Crude oil recorded lucrative gains in 2016 as prices rebounded from decade low levels of US$ 30-ish/bbl in the prior year. Soaring over +50%, this marked the first annual gain for Brent crude oil in 4 years. The +45% rally in WTI crude oil also marked the first yearly increase, following the selloff, totaling -76%, over the previous 2 years. Apart from the low base, the rally was driven by ongoing speculations that OPEC and non-OPEC producers would freeze/cut output. Such hopes culminated to the deal, announced last December, that OPEC decided to cut its crude production by 1.2 million barrels, effective January, 2017, while non-OPEC producers, including Russia but not the US, would reduce output by around 0.6M bpd.
While execution of OPEC/non-OPEC cuts remains highly uncertain, the Paris-based International Energy Agency (IEA) forecasts global oil surplus would start disappear in 1H17. The agency suggested that "OPEC, Russia, and other producers are looking to speed up the process" of rebalancing this year, adding that "the market is likely to move into deficit in the first half of 2017 by an estimated 600K barrels a day" if all the parties comply to the agreement.
Precious metals also had a good year, in spite of US dollar's strength. Stimulated by the delays of Fed funds rate hikes, gold and silvers prices rebounded from low bases in 2015 to highest levels in 2 years in mid-2016. Gains were, however, pared as US economy showed signs improvement which once again fueled rate hike speculations. Gold price, gaining for the first time in 4 years, added +8.46% last year, while silver, also in its first winning years after declining since 2013, soared about +15%. We remain concerned over precious metals' outlook in 2017 as the latest FOMC dot plot signaled 3 rate hikes this year.
As both US and UK are closed on public holiday on January 1, the focus was on China. The Markit/ Caixin manufacturing PMI index added +1 point to 51.9 in December. This came in better than expectations of an unchanged 50.9 and marked the highest reading since January 2013. the output and new orders sub-indices both rose to multi-year highs whilst input costs and output prices sub-indices strengthened further. According to the agency, China's manufacturing activities "continued to improve in December, with the majority of sub-indices looking optimistic. However, it is still to be seen if the stabilization of the economy is consolidated due to uncertainties in whether restocking and consumer price rises can be sustainable".
Today, US' ISM manufacturing index probably added +0.5 point to 53.7 in December. In Europe, Germany's number of unemployment might have dropped -5K in December, after seeing the same degree of decline a month ago. The jobless rate probably stayed unchanged at 6% for the month. Germany's headline inflation might have accelerated to +0.6% m/m in December from +0.1% a month ago. From a year ago, CPI is expected to have accelerated to +1.4% from +0.8% previously.