OIL: Crude Little Changed, Focus On Weekend’s OPEC Meeting
Oil prices were unchanged in holiday-related light trading with both the US and UK closed on Monday. They started the day higher following the news that US-EU trade talks would continue until July 9 without any new tariffs. Crude then took a step down as another increase in OPEC output is expected following the group’s weekend meeting.
- WTI rose to a high of $62.14/bbl early in Monday’s session. It reached a low of $61.24 later in trading. It finished at $61.53 to be up 6.8% in May. WTI has started today down 0.1% to $61.47. The recovery since April 9 still seems corrective. Initial resistance is at $62.71, 50-day EMA, while the bear trigger is $54.33, 9 April low.
- Brent’s intraday high was at $65.40 and low at $64.51 – a relatively narrow range. It closed at $64.81. The benchmark maintains a short-term bullish theme with initial resistance at $66.19, 50-day EMA. The bear trigger is at $58.00, 9 April low.
- OPEC surprised with the size of its production increases in both April and June, and the market sees that as a distinct risk at the upcoming meeting. The decision will come into effect from July. Bloomberg is reporting that the video call has been brought forward one day to May 31 apparently due to scheduling. Delegates told Bloomberg that the group last week began considering a third 411kbd output rise. Quotas are to be reviewed on May 28.
- There are fires in Alberta close to oil sands and gas well facilities. A fire near Swan Hills is less than 500m from a Canadian Natural Resources site and within 20km from another of its wells.
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
