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LGT Navigator: Opec+ supports oil prices, increasing inflation risk

October 6, 2022

The oil cartel Opec+ decided to significantly reduce its production volumes. This step is intended to support oil prices but is also likely to drive up inflation. On the stock markets, the momentum was lost again somewhat after the recovery rally at the beginning of the week. On Wall Street, the indices initially fell sharply at the start of trading, but then made up for the initial losses in late trading. Stronger than expected employment figures from the US in the run-up to the eagerly awaited American labor market report and a stronger than forecast result of the ISM survey in the US service sector again increased the chances of an unchanged restrictive stance by the Federal Reserve and thus again called into question hopes of a more moderate monetary policy course.

Opec+ supports oil prices, increasing inflation risk

The Opec+ organization announced that it would cut its oil production by two million barrels a day from November. This is the most comprehensive reduction in production for a long time in order to support oil prices, which have recently come under pressure. A move that could further fuel high inflation, particularly in Western industrialized nations.

The Dow Jones Industrial closed at 30'273.87 points -0.14% lower than the previous day and the S&P 500 slipped -0.2% to 3'783.28 points. On the Nasdaq, the indices were virtually unchanged from Monday's close. In turn, the yield of ten-year US government bonds rose again to 3.76%.

In the Asia-Pacific region, the stock markets trended inconsistently on Thursday. The Nikkei 225 in Tokyo rose by just under +1%, while the Hang Seng Index in Hong Kong after the brilliant rally the previous day (+6%) fell again by about -0.5%. The MSCI index for the Asia-Pacific region (excluding Japan) rose +0.5%. Mainland Chinese markets remain closed this week for the “Golden Week”. Continued geopolitical uncertainties are caused by a new missile test by North Korea.

ADP data paint picture of still robust US labor market

Private-sector job creation in the United States remains strong. According to labor market services provider ADP, +208'000 new jobs were added in September, slightly more than the +200'000 analysts had expected on average. In addition, job growth in August was revised sharply upward from an initial +132'000 to +185'000. The ADP data are considered an indicator for the official labor market statistics from Washington expected on Friday.

US service sector proves more solid than expected

In the US, according to the latest ISM survey data, service sector sentiment remained stable from the previous month and still well above the 50-point threshold, continuing to signal a growth trend in the sector. The ISM Non-Manufacturing PMI edged down 0.2 points to 56.7, also above the consensus of 56.0 points.

Contraction in Europe consolidates

In the eurozone, S&P Global's Purchasing Managers' Index for the private sector fell from 48.9 to 48.1 points in September, its lowest level since January 2021. Companies in both the industrial and services sectors are being weighed down mainly by the energy crisis, rising inflation and increasing concerns about the economic outlook, S&P Global commented.

In the UK, business sentiment in the industrial and services sectors also deteriorated, although not as much as expected. The corresponding Purchasing Managers' Index slipped 0.5 points to 49.1 in September - the lowest reading since January 2021.

Ifo expects inflation to remain high for longer

According to a survey by the Munich-based economic research institute Ifo, a long-lasting phase of high inflation must be expected in Germany. Prices for gas and electricity will continue to rise and price increases will continue to increase almost across the board in the coming months. Another reason why inflation is not expected to cool is the increase in the minimum wage as of October.

Economic Indicators October 6

MEZ Country Indicator Last period
08:00 GE Industry Orders (August, m/m) -1.1%
11:00 EZ Retail Sales (August, m/m) +0.3%
13:30 EZ ECB Minutes
14:30 US Initial Jobless Claims (weekly) 193,000


Earnings Calender October 6

Country Company Period
GE Merck KGaA Capital Market Day
UK Imperial Brands Q4 Sales


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