As the start of the second quarter rolls in, investors are facing a potentially disinventive complication: a sudden jump in crude oil prices. The Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia started the quarter with a surprise output cut announcement that will eventually amount to 1.16 million barrels per day. Following the announcement, Brent crude surged 5%, settling above its opening.
However, the market’s capacity to sustain this growth is limited, as evidenced by a negative base effect and weakening global factory output. Moreover, higher energy prices only complicates matters for a world economy already dealing with inflation and tighter credit.
Despite all of this, the reaction across different markets has been relatively modest. The futures market only yields a 65% chance of a single Fed hike in the month and two and ten-year Treasury yields were almost unchanged from Friday’s levels. Indices in Europe and Asia went relatively steady to higher, with S&P500 futures marginally in the red ahead of the market’s open.
Confirming earlier signs of slowing, March factory readings around the world were mixed. China, who produces a third of the world’s second-largest economy, waivered around the 50 mark, with economists at ING lowering the GDP growth forecast to 3.8%. Data in the euro-zone, UK and U.S. all pointed to a continuation in contraction and deterioration.
As a result, the weaker labour market came into focus, with the March national employment report on Friday being a critical indicator of the Fed’s “data dependent” outlook going forwards. Expectations are still high that the unemployment rate will remain low at 3.6%, but with service sectors doing much better, an unexpected cooling in job creation and average earnings can still happen.
Tesla entered the day with news of record quarterly vehicle deliveries, though its stock was down 2% as quarter-on-quarter sales growth was modest. Meanwhile, McDonald’s was temporarily closing its U.S. offices as part of a broader company restructuring, which will lead to widespread layoffs.
On the political front, former U.S. President Donald Trump is scheduled to arrive in New York City ahead of his arraignment related to hush money paid to a porn star before the 2016 election. He will be met with a barrage of key economic developments, such as the U.S. March ISM manufacturing survey and construction spending, Federal Reserve Board Governor Lisa Cook’s speech, the OPEC monthly meeting and the ADP private sector employment cut on Wednesday.
Tesla Inc. (NASDAQ: TSLA) is an American Electric car and energy company that designs, manufactures and sells electric vehicles and energy storage products. This cutting edge company is led by Elon Musk and has gained an enormous following based on its revolutionary products, efficient customer service and sustainability initiatives.
Donald Trump is the 45th president of the United States, having previously worked as a business mogul and reality television star. In 2020, he was impeached for “high crimes and misdemeanors” including abuse of power and obstruction of justice. However, he was later acquitted. Since leaving office, Trump has been subject to several lawsuits, the most recent of which is related to hush money paid to a pornographic actress before the 2016 election.