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Crude higher on OPEC’s headline, yields on the rise

Summary:

  • GBP is the strongest currency after higher inflation in August
  • Crude prices gain as OPEC is likely to discuss more than a 3 month deal extension
  • Yields are on the rise across the board as Irma risks recede

The British pound is by far the strongest currency in G10 following higher than estimated inflation numbers for August, even as higher price dynamic is likely to dial back purchasing power of UK’s consumers. An increase has been boosted by higher prices in sectors such as clothing and footwear, household and communication. The pound is gaining 0.8% against the greenback. The UK 10Y yield has jumped all but 4 bps in response to quicker pace of price growth.

Nonetheless, yields are on the rise across the board, for instance the US 10Y yield is increasing almost 3 bps, which supports declines on the EURUSD even as the 10Y bund is moving up 3.5 bps. On top of that, the NZD is being in demand after a poll giving an advantage for the National Party over the Labor Party ahead of the general election scheduled on September 23.

Taking a look at commodities, crude prices have been propped up by the OPEC’s headline suggesting that a longer than 3 month deal extension could be on the table. Nevertheless, length of an extension will depend on state of global oil market. As a result WTI prices are rising 0.6% while its European peer is gaining 0.4% meaning the spread has narrowed slightly.

After quite the upbeat session seen across Asia, the European indices have started the day higher being still hastened by receding risks related to the hurricane Irma. On top of that, rising US yields are propping up the US futures which are pointing to a sturdy opening. On the other hand, stock investors might be fond of the subdued performance of the euro which is gaining just slightly in early trading.

The UN Security Council approved yesterday new sanctions aimed at punishing North Korea for its latest missile and nuclear tests, though the US scrapped demands such as an oil embargo in order to get both Russia and China on board supporting renewed sanctions. Cutting imports of refined petroleum products and banning textile exports are among them.

The NOK could be quite interesting this week as the currency was under pressure yesterday on political uncertainty. The country went to polls and as it seems the ruling conservative prime minister was able to strike a narrow victory over a millionaire opponent. Markets could like the result as she promised tax cuts (unlike her opponent who wanted higher taxes for the rich) and offers continuation, albeit her coalition necessary for the majority is quite complex.

Looking ahead, there will be a speech delivered by ECB’s vice chairman Vitor Constancio as well as a report on a change in oil stocks according to the API.

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