Marketmind: Markets brush off OPEC as factories stall

A look at the day ahead in U.S. and global markets from Mike Dolan

Relatively calm world markets have brushed off OPEC’s latest twist and focussed more squarely on stalled global manufacturing and edgy U.S.-China relations.

Crude oil prices held much of Monday’s pop higher on the surprise weekend production cut by the Organization of Petroleum Exporting Countries. But Brent crude remains below levels seen just before the Silicon Valley Bank bust last month and is still tracking year-on-year declines of 20%.

One reason for the damp squib is that crude output reduction may simply offset ebbing demand from global factories – where this week’s March surveys indicate production may be running at annualised growth rates of less than 1%, according to JPMorgan.

The U.S. output picture alarmed rates and bond markets yet again on Monday as The Institute for Supply Management said manufacturing activity slumped to the lowest level in nearly three years in March and new orders continued to contract.

The PMI reading of 46.3 – far below the 50 dividing line between expansion and contraction – was the lowest since the depth of the pandemic slump in May 2020, well below forecasts and the fifth straight month in contractionary territory.

U.S. two-year Treasury yields relapsed back below 4% after the release and have struggled to get a toe-hold back above there today. Strikingly, both short and long-term inflation expectations embedded in the Treasury markets have barely budged since the OPEC news.

Helped by a 5% jump in energy sector stocks, the S&P500 ended higher again however and futures were flat to firmer ahead of Tuesday’s open. Big Tech and Tesla were the main losers on Monday, with Tesla losing more than 6% after disclosing underwhelming March-quarter deliveries despite slashing car prices in January.

The macro market attention now turns to the U.S. labour market ahead of Friday’s March payrolls report, with February job openings data on the radar later on Tuesday.

Consensus forecasts for job creation last month show only a modest easing from the monster February reading, but PIMCO points out that the wave of corporate layoffs announced in January probably won’t register fully until April due to 60-day notice periods for employees of large firms.

Elsewhere, the dollar eased with the softer rates environment and sterling leading the way to its best levels since last June.

The Australian dollar went in the other direction, however, and reversed much of Monday’s gain as the Reserve Bank of Australia left its cash rate unchanged at 3.6% to break a run of 10 straight hikes, saying it wanted more time to assess the impact of past increases.

Tense geopolitics dominated much of the rest of the news.

China warned U.S. House Speaker Kevin McCarthy not to “repeat disastrous past mistakes” by meeting Taiwan President Tsai Ing-wen this week, saying it would not help regional peace and stability and only unite China’s people against a common enemy.

McCarthy, the third-most-senior U.S. leader after the president and vice president, is due to host a meeting in California on Wednesday with Tsai.

Donald Trump, the ex-president and frontrunner to be Republican nominee in 2024, finally appears in court in New York on Tuesday and is set to be formally charged over 2016 “hush money” payments – a watershed moment ahead of next year’s presidential election.

Elsewhere, Richard Branson’s Virgin Orbit Holdings filed for Chapter 11 bankruptcy after the satellite launch company failed to secure the long-term funding needed to help it recover from a January rocket failure.

In deals, British asset manager Rathbones agreed to acquire the UK wealth business of Investec, in an all-share deal valuing the unit at just over $1 billion.

And in banking, Credit Suisse’s chairman apologised for taking the Swiss bank to the brink of bankruptcy as he faced fury at the firm’s final shareholder meeting.

Key developments that may provide direction to U.S. markets later on Tuesday:

* U.S. Feb JOLTS job openings data, Feb factory orders; Canada Feb trade balance

* U.S. Federal Reserve Board Governor Lisa Cook, Boston Fed President Susan Collins, Cleveland Fed chief Loretta Mester all speak; Bank of England chief economist Huw Pill speaks

* European Commission President Ursula von der Leyen and French President Macron visit China

ISM Manufacturing PMI, https://www.reuters.com/graphics/USA-STOCKS/mypmobdnbpr/ism.png

U.S. job openings, https://www.reuters.com/graphics/USA-STOCKS/egpbyogmyvq/jolts.png

Australia pauses rate hikes to assess tightening impact, https://www.reuters.com/graphics/AUSTRALIA-ECONOMY/RATES/jnvwyjqbrvw/chart.png

Tesla deliveries growth slows, https://www.reuters.com/graphics/TESLA-DELIVERIES/myvmobdmbvr/chart.png

(By Mike Dolan, editing by Christina Fincher mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)