Stock investors seem to remain a bit nervous and worried that the recent upswing might simply be a “bear market rally” fueled again by speculation that the Federal Reserve will back off its tightening program sooner than expected.
Recent data has shown some cooling in the labor market as well as declines in wholesale prices, which some bulls want to interpret as justification for the Fed to issue smaller rate hikes or even pause by the end of the year.
That idea could be reinforced if the September Employment Report out on Friday provides further proof that job gains are slowing and/or wage pressures are coming down more significantly. Data from ADP showed a slightly higher-than-expected gain of +208,000 jobs in September versus Wall Street expectations for +200,000, though most economists aren’t putting much faith in the payroll company’s data right now.
The Consumer Price Index (CPI) next Thursday will be the next major test as far as data goes.
Unfortunately, energy prices have again become a major wildcard in the inflation equation with OPEC+ yesterday opting for a massive -2 million barrel per day oil production cut. At a news conference after the meeting, the Saudi energy minister, Prince Abdulaziz bin Salman, said OPEC Plus was acting amid signs of a downturn in the world economy. This may have a smaller impact on global supply than the headline number suggests as several member countries are already pumping well below their quotas, meaning they would already be in compliance with their new limits without having to reduce production. From what I understand, the cut of -2 million barrels a day for the group’s overall output would require just eight countries to curb actual production and deliver a real reduction of about -700,000 to -900,000 barrels a day. Regardless, the cartel’s decision risks adding another shock to a global economy that is already battling inflation driven by higher energy costs.
In response to OPEC’s cuts, President Joe Biden has authorized the release of 10 million barrels of oil from the Strategic Reserve next month. The White House is also dialing back sanctions on Venezuela, enabling the country to ramp back up oil exports. Wow! There have also been rumors floating around that the Biden administration is considering a ban on US gasoline, diesel, and other refined petroleum product exports as a means of keeping domestic energy prices grounded.
The administration did meet with oil industry executives this week, which prompted a follow-up letter from the group urging the White House to abandon the idea and warning that export restrictions would “likely reduce inventories, reduce domestic refining capacity, drive up fuel prices for consumers, and anger U.S. wartime allies.”
Keep in mind, the EU is planning on implementing price caps on Russian oil starting sometime in December, which the US, Japan, and several other countries also intend to recognize. Some think that plan could keep a lid on global oil prices, though others also argue it could exacerbate existing supply issues if oil producers start losing money. It’s worth noting that Biden earlier this week did nix a proposal to curb natural gas exports this winter even though US supplies are at historically low levels heading into winter. That’s large because of the massive increase in natural gas exports to Europe as part of efforts to help them shore up inventories after Russia essentially cut off supplies.
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