OIL: Crude Continues To Find Support From Geopolitical Risks
Sep-28 23:27
Oil prices were moderately higher on Friday and finished the week up around 4.5% on geopolitical risks particularly stemming from Russia-Ukraine but also the reimposition of UN sanctions on Iran over its nuclear programme. US President Trump increased diplomatic pressure on Turkey to stop buying Russian oil and is likely to do the same with Hungary. Crude was also supported by the softer US dollar (BBDXY -0.3%).
- Ukraine’s President Zelensky said that he expects further EU sanctions on Russia announced this week.
- Brent increased 0.5% to $69.75 following a peak of $70.76 to be up 4.6% last week and 3.4% this month. It broke above initial resistance but key resistance at $71.93 remains intact.
- WTI rose 0.3% m/m to $65.19/bbl after reaching the month’s high of $66.42. It finished up 4.5% on the week and 2.7% in September.
- WTI is currently around $65.04/bbl, a moderate move after exports resumed from Iraqi Kurdistan through the Kirkuk-Ceyhan pipeline on the weekend after a deal was finally reached with Turkey. Flows were halted in March 2023.
- Iraq has revised up its export forecast to 3.65mbd after the resumption of shipments at a time when significant excess supply is forecast for 2026 and OPEC has increased its output target.
- OPEC+ decides production for November on 5 October and is currently expected to increase it by more than the 137kbd for October, according to Bloomberg. It seems that the group is now beginning to unwind the 1.66mbd of previous output cuts as it works to regain market share but Saudi is the main source of spare capacity.
- Oil prices have also been supported by algorithmic traders shifting positions which were 27% net long on Friday from 27% short the day before, according to Bridgeton Research.
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RATINGS: S&P Upgrades Portugal To A+ From A
Aug-29 20:28
S&P has upgraded Portugal's long-term credit rating to A+ from A, with a stable outlook (had been positive).
- This is the 7th S&P upgrade for Portugal, from a low of BB in 2012-15. Only four ratings are higher (AA-, AA, AA+, AAA). This is the same rating as Slovakia, and just above Spain (A) per S&P.
- Per Bloomberg: "*S&PGR UPGRADES PORTUGAL TO 'A+' ON LOWER DEBT; OUTLOOK STABLE"
STIR: Still Eyeing September And December Cuts
Aug-29 20:16
With few market-moving data points this week, implied Fed rate cuts essentially held onto their post-Jackson Hole upward repricing, adding a couple of basis points of easing for good measure heading into the Labor day weekend.
- Indeed, the lack of movement is somewhat remarkable given this week's extraordinary "firing" of Fed Governor Cook, which is currently being fought out in the courts. In all it probably added to the dovish tone on the near-term rate outlook post-Jackson Hole but not substantially so, at least so far.
- The current path sees a September rate cut priced with nearly 90% implied probability, with 56bp of cuts through end-year (a cumulatively priced second cut in December) and 83bp through March 2026 (3+ cuts).
MACRO ANALYSIS: MNI US Macro Weekly: One Week, Two Labor Days
Aug-29 20:10
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- A busy pre-holiday week for data brought mixed economic signals and little net change in Fed easing expectations, putting next week’s labor day – Friday with its nonfarm payrolls report, of course, with apologies to Monday’s federal holiday – in focus for the FOMC and market participants alike.
- Second-quarter GDP was revised up by more than expected in the second reading, to 3.3% Q/Q SAAR, driven by better-than-previously estimated domestic demand but still leaving 1st half growth in slightly weaker territory vs last year. That said, the Atlanta Fed's Q3 GDPNow estimate jumped to 3.47% (though the implied contribution from net exports in the quarter looks somewhat dubious, as we explain).
- The other major release of the week was July's Personal Income and Outlays report, which showed a modest uptick in income and spending on the month. However, the broader trends remain mixed at best, as real disposable income growth remains soft and services consumption is failing to regain traction.
- Core PCE inflation was close to expectations in July as the Y/Y accelerated to 2.9% for its fastest since February as it moves further away from recent lows of 2.6% having stalled above the 2% target. Recent trend rates are a little hotter but the median FOMC member will still need to see a further acceleration to meet their 4Q25 forecasts from June.
- Labor data were mixed. Latest jobless claims were in line to slightly better than expected, with initial claims trending a little higher but still impressively low whilst continuing claims are broadly plateauing after sharper increases in 1H25. But within the Conference Board consumer survey, the labor differential edged lower again, suggesting a continued upward trend in the unemployment rate.
- Elsewhere: regional Fed activity surveys were individually mixed, but combined generally showed an improvement in both manufacturing and services activity albeit with continued upside price pressures.
- Consumer sentiment (UMichigan and Conference Board surveys) and housing activity remained soft.
- Apart from Gov Waller again making the case from rate cuts, other FOMC colleagues who commented this week were a little more guarded when it came to the need for easing, to our ear.
