With just a day ahead of the Organization of the Petroleum Exporting Countries (OPEC) scheduled meeting in Vienna, impromptu talks between member nations Saudi Arabia and Venezuela with nonmembers Russia and Mexico ended without announcing any kind of agreement. On top of this, signals sent by individual member nations thus far suggest there is little consensus on whether and how to reduce output and stabilize prices. Benchmark West Texas Intermediate crude for January delivery fell to USD 73.60 a barrel, while Brent crude oil dipped to USD 78 a barrel on these developments. What could be agreed on Thursday is stricter enforcement of the existing production quota of 30 million barrels a day. Yet this is unlikely to be enough to reverse the fall by more than 30% since June in oil prices as there are no guarantees of any production cutbacks nor it is clear how non-OPEC members will react. It looks to us as if the decline in oil prices is likely to continue, particularly against the background of a slowing Chinese economy and stagnating European economy and continued high US domestic production.
On Tuesday, data showed that the US economy grew +3.9% qoq SAAR according to the 2nd estimate of the Q3 GDP, exceeding the initial estimate of 3.5% qoq SAAR. The forecast was for the figure to be revised down to +3.3% qoq SAAR. The 2nd estimate of the core PCE rate remained unchanged from the initial estimate, at +1.4% qoq SAAR. The economy in Q2 and Q3 posted its best back-to-back growth in 11 years, offering new evidence that the US entered the final quarter with a good head of momentum. On the other hand, the US consumer confidence index declined from its highest level since October 2007 and the Richmond Fed manufacturing index declined from an almost 4 year high. The mixed data weakened the dollar against most of its major peers. However, I would continue to view any USD setbacks as providing renewed buying opportunities, since the alternatives within the G10 are becoming less and less attractive.
Sweden’s economic tendency survey for November is expected to decline marginally from the previous month.
In Norway, the AKU unemployment rate for September is forecast to have remained unchanged at 3.7%. The official unemployment rate for the same month had declined, thus the possibility for a positive surprise is high which could be a bit NOK-supportive.
In the UK, the 2nd estimate of Q3 GDP is expected to show a +0.7% qoq pace of growth, in line with the preliminary estimate, confirming a modest slowdown in the country’s growth momentum. With this release we will get the expenditure details for the first time, which will give us more information about the Q3 growth. The release as forecast should be neutral for GBP.
A busy day in the US! Today we get durable goods orders for October. The headline figure is forecast to show a 0.6% mom fall, a slower decline than -1.1% mom in the previous month. On the other hand, durable goods excluding transportation equipment are estimated to rebound from September. Personal income and personal spending for October are also due out. Personal spending is forecast to have rebounded, fueled probably by income gains amid a stronger US labor market. Core PCE for October is expected to remain unchanged in pace from September on a mom basis, in line with the unchanged 2nd estimate of Q3 core PCE in Tuesday’s GDP figures. The Chicago purchasing manager index and the final University of Michigan confidence index, both for November, are also coming out. Pending home sales and new home sales, both for October, are likely to confirm that housing sector is growing again after a soft summer. All told, the data is likely to be USD-supportive and we would expect to see the dollar rally on the news.
In New Zealand, the trade deficit for October is forecast to narrow somewhat. Following yesterday’s fall in the 2-year inflation expectation rate, which makes a rate hike less likely, the moderate narrowing in the deficit will probably not be enough to reverse the negative sentiment towards kiwi and we remain bearish towards the currency.
We have only one speaker scheduled for Wednesday, ECB Vice President Vitor Constancio speaks.