OPEC+ to keep cuts in place in Q2

Saudi Arabia has announced that it will extend its 1m b/d of production cuts until the end of Q2 along with additional output restrictions from some OPEC+ members. According to a statement released on the Saudi press agency the 1m b/d of restrained output could be “returned gradually subject to market conditions.” An extension of the OPEC+ cuts was our baseline scenario for oil market balances this year as returning a significant volume of barrels back to the market for Q2 would likely have overwhelmed demand even more and led to substantial inventory builds.

Inflation in the Eurozone ticked higher in February as core inflation came in ahead of expectations. Headline CPI inflation rose by 2.6% y/y, down from 2.8% in January but faster than markets had been forecasting while core inflation rose by 3.1%, down from 3.3%. Inflation in the eurozone has cooled sharply from the more than 10% peak hit in October 2022 but the disinflationary trend has moderated in recent prints. Wage pressures remain strong in the Eurozone economies and ECB officials have been hesitant to endorse a quick end to tight monetary policy. The ECB next meets later this week with minimal chance of a rate cut. Markets are pricing in more than a 70% probability of a cut at the June ECB meeting.

The ISM measure of manufacturing in the US dropped in February, falling to 47.8 from 49.1 a month earlier and missing expectations of an improvement. The index has been below the neutral 50 mark since October 2022 and all sub-components weighed on the index for February. New orders and production declined along with employment. The S&P manufacturing PMI was more upbeat, however, with an improvement to 52.2 for February on its final estimate, up from 51.5 a month earlier.

Member nations of the World Trade Organization kept a moratorium on e-commerce tariffs in place for two years after negotiations held in Abu Dhabi. However, delegates failed to reach agreement on a deal covering agriculture or fisheries subsidies.

ADQ, an Abu Dhabi sovereign wealth fund, is exploring selling a stake in Etihad Airways according to press reports. Were the airline to be listed it would the first among the national carriers in the region to have its ownership open to the public.

Today’s Economic Data and Events

• 11:00 TU CPI y/y Feb: forecast 66.2%
• 11:00 TU PPI y/y Feb: forecast 44.2%

Fixed Income

• US Treasuries rallied at the end of the week, bolstered by the soft manufacturing data released earlier in the day. Yields on the 2yr UST dropped almost 9bps to 4.5313% while the 10yr fell 7bps to 4.1798%. Markets are assigning virtually no chance of a cut at the March FOMC meeting while employment data out at the end of the week will set the tone for Treasuries.
• Bond markets generally had a solid close to the week with high-yield and emerging market bonds rallying. Regional markets were also positive with a GCC-wide index of USD bonds closing higher at the end of the week.

FX

• Currency markets turned against the dollar on Friday with EURUSD adding 0.3% to 1.0837 while GBPUSD gained a bit more than 0.2% to settle at 1.2655. The faster than expected inflation data out from the Eurozone will temper expectations of early rate cuts from the ECB and should notionally provide a bit of support for EURUSD. USDJPY edged higher, closing above the 150 level at the end of the week.
• Commodity currencies also pulled higher with USDCAD moving lower by 0.1% to 1.3561 in favour of the loonie while AUDUSD added 0.5% to 0.6527 while NZDUSD bumped higher by 0.33% to 0.6107.

Equities

• Benchmark equity indexes rallied on Friday with the Dow Jones up 0.2% and the S&P gaining a strong 0.8% while the NASDAQ was the outright out-performer with a gain of more than 1.1%. European markets also rallied with the FTSE up 0.7% and the Euro Stoxx index adding 0.4%.
• Asian markets also had a strong close to the week with the Nikkei rallying 1.9% and the Hang Seng adding 0.5%.
• Regional markets had a positive close on Friday with the DFM up more than 1.1% while the ADX gained 0.2%.

Commodities

• Brent markets closed flat on Friday at USD 83.55/b while WTI continues to edge closer to USD 80/b, closing at its year-to-date high of USD 79.97/b. Time spreads continue to suggest substantial tightness in oil markets even if the moves in the front month have been more gradual than grandiose.
• A Bloomberg measure of OPEC production for February showed an increase of 110k b/d m/m thanks to improvements in supply from Libya while output from Nigeria, Saudi Arabia, the UAE and Venezuela ticked higher. The UAE produced 3.14m b/d in February compared with an OPEC+ production target of 2.91m b/d.