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Oil volatile, sterling falls to two-week low on election poll

What you need to know

  • Oil prices choppy after Opec deal disappoint
  • Soft energy stocks hobble equity benchmarks
  • US futures show S&P 500 easing slightly from record
  • Sterling drops as poll shows tighter election race
  • Gold gains $4 to $1,259 an ounce

Hot topic
Oil prices are choppy after retreating sharply from five-week highs, countering positive sentiment surrounding a new record for Wall Street.

Brent crude, the international energy benchmark early on Thursday hit $54.67 a barrel, its most expensive since April 19, as traders anticipated a deal by Opec to extend production cuts in order to curtail a three-year supply glut.

But it seems some in the market were hoping for a more aggressive output-slashing deal, and oil prices relapsed spectacularly in its wake.

Brent fell 4.6 per cent after Opec announced the agreement on Thursday, its third-biggest one-day drop of the year, and is struggling to recover, adding just 0.2 per cent to $51.58 a barrel on Friday.

West Texas Intermediate, the main US contract, is up just 0.4 per cent to $49.08 a barrel, having lost 4.8 per cent in the previous session.

“OPEC’s decision is in line with our and consensus views; however, price action likely reflects, first, that market participants bought the rumour over the past two weeks and sold the news today, “ said the commodities research team at Barclays.

“Based on our conversations, some market participants may have expected either a deeper cut, a longer one, inclusion of more countries, or other such icing on the cake.”

What to watch
The dollar index is up 0.1 per cent to 97.33 and benchmark US 10-year Treasury yields, which move opposite to the bond price, are easing 1 basis point to 2.25 per cent ahead of a batch of US economic data.

Revisions to first-quarter GDP will be released at 13:30 BST alongside the April durable goods orders report.

Ninety minutes later the University of Michigan’s consumer sentiment index for May will hit dealers’ screens.

Along with next Friday’s official monthly jobs report, the data may have to be pretty weak to dissuade the Federal Reserve from tightening monetary policy at its June meeting.

Futures markets are currently pricing in an 88 per cent chance the central bank will raise rates by 25 basis points next month, according to the CME FedWatch tool.

Equities
The US stock market managed to absorb a sharp decline in the energy sector on Thursday and finish at another record, with the S&P 500 closing at 2,415.

But the latest slide in oil prices, alongside caution ahead of long holiday weekends in the US and UK, appear to be weighing on sentiment a bit on Friday.

Index futures indicate the S&P 500 will ease 2 points when trading gets under way later in New York, and the pan-European Stoxx 600 is opening down 0.3 per cent per cent as the oil and gas index sheds 1.1 per cent.

Weakness in energy stocks hobbled both Japan and Australia, with the Topix index off 0.6 per cent and the S&P/ASX 200 down 0.7 per cent, the latter also pressured by declines for miners as China’s iron ore prices hovered near seven-month lows.

Hong Kong’s Hang Seng dipped 0.1 per cent but remained near its highest level since July 2015, while the Shanghai Composite lost 0.1 per cent. China stocks have recovered their poise since Moody’s on Wednesday downgraded China’s sovereign ratings to A1.

Forex and fixed income

Sterling is a notable poor performer, sliding 0.5 per cent to $1.2869 after a poll suggested the UK election race was tightening.

UK 10-year gilt yields are a fraction of a basis point lower at 1.03 per cent, looking to end the week at a five-week tough amid evidence the UK economy is slowing.

The Japanese yen is 0.5 per cent firmer at ¥‎111.29 per dollar after data on Friday showed headline consumer prices had risen in line with expectations during April.

The euro is steady at $1.1211 after this week hitting an eight-month high of $1.1267 amid signs of improving economic activity across the continent. Ten-year German Bund yields are barely changed on the day at 0.36 per cent.