Daily Commentary BY THE CURVE TEAM –

OPEC Outcome Could Impact Outlook

19th of June, 2018

A lack of data to start the week meant the positioning ahead of this week’s OPEC meeting was one of the dominant themes overnight. Other highlights were more Fed members reiterating that rates are heading higher while the leadership of the EU’s biggest member is under fire.

The OPEC meeting this week is set to be one of the most interesting in recent times. Oil surged overnight from key technical levels after headlines suggested the increase in production could be as little as 300-600 thousand barrels. Much less than the mooted 1.5m barrels mooted by the Russian’s and Saudi’s.

Where oil goes over the long term has a significant impact on both economic growth and activity as well as the outlook for monetary policy. Expect more volatility in the lead up to the meeting but when the dust settles we will know more about the broader impact of whatever OPEC agrees, or may not agree on and its implications for monetary policy.

On monetary policy, we had a couple of Fed members overnight confirming rates are heading higher on the back of a strong US economy. Comments from Boston’s Raphael Bostic and incoming NY Fed President John Williams, weren’t exactly new news but did confirm the growing divergence of monetary policy outlooks between the US and other developed nations.

It appears Europe just can’t take a trick when it comes to uncertainty and instability with the leadership of the EU’s largest member now under fire.  German Chancellor Angela Merkel has been given two weeks to sort out the immigration crisis. It simply adds to the narrative of policy divergence.

Finally on monetary policy, the RBA will release the minutes from their June Board meeting today. I wouldn’t expect much in the way of new information that may change over the month ahead as the domestic data looks to be softening at the moment.

David Flanagan

Director - Interest Rate Markets