At its most recent meeting in the Austrian capital, OPEC finally cobbled together a production agreement between its fractious members along with outsider Russia, details as below. Total cuts amount to around 1.2 mln bbl/day. Mr. Market was impressed by this display of (apparent) solidarity and pushed WTI above $51 USD/bbl in response, a strong rally.
This accord will likely hold for some time, but the fundamental problems facing the cartel haven't disappeared. President-elect Trump will likely green-light the Keystone XL pipeline from Alberta to American refiners – obviously reducing American demand for OPEC crude – but again, as we have mentioned before, American frackers stand ready to start producing at a moment's notice. $60 USD/bbl appears to be the threshold at which frackers can start producing – and exporting. However much OPEC pines for the glory days of the past, those days are over.
The Eurozone will be dealing with the fallout from the Italian constitutional referendum of December 4th. Results were unknown at the time of writing but, regardless, Eurocrats have been put on notice. The populist uprising commencing with Brexit in the UK and the election of Mr. Trump in the US has been gaining momentum, with current French PM Francoise Hollande – whose approval ratings hover around 4% (!) – declining to run again in next year's French elections. The strength of Marine Le Pen and her Front Nationale has badly spooked French parliamentarians and others in the zone. Not surprisingly, in the case of the Italian vote, there have been dire warnings of economic losses, disrupted markets and the like, all similar to the gloom and doom prior to the UK plebiscite and the American election and, like those two, just as likely to turn out overblown.
The ECB kept a low profile with little of note to report. However, the political turmoil which may be arriving in the Eurozone in the next few months, with elections in France, Germany, the Netherlands and possibly Italy, will overshadow any monetary manoeuvres by Mr. Draghi at the bank.
In the UK, talk is now of a 'soft Brexit', one in which the UK would continue to have access to the EU but in an associate status, similar to Sweden and Norway which would require paying a fee of some sort to Brussels. This led sterling to top spot in last week's gains. The takeaway from this development is that the EU, which haughtily dismissed any talk of a soft Brexit last spring after the vote, now finds itself under populist assault and lacking the sort of leverage it once fancied it possessed.
In the Far East, as noted in last week's newsletter, the Bank of Japan continued its tight control of the Japanese yield curve, crushing any thought of rising yields. Once again, the currency took the hit, with JPY lagging in the over-all currency rally against the USD.
Finally, we take a look at the US dollar Index (USDX).
Clearly, the 50 day moving average (blue line) continues to widen its lead over the 200 day moving average (red line), a solidly bullish signal. So it remains Up, up and away for Superbuck! A correction is overdue – or perhaps a bit of stray kryptonite – as this does look a bit stretched, but all good traders know that The trend is your friend. Having said that, the USDX is having a difficult time extending its gains beyond last week's highs. It also failed to extend a three-week advance and this week's light US news calendar may help spur a correction. As for the technicals, the momentum indicators have all turned down. Consider yourself warned.