June 12, 2018
- The US and North Korea agreed to seek complete denuclearization of the Korean peninsula following a historic summit between President Donald Trump and Kim Jong Un, although the accord set no deadline and left the path to disarmament undefined. Trump defended the document he signed with Kim at the end of their meeting. During the signing ceremony, Kim said the agreement “heralds a new start, leaving the past behind.” Trump committed to provide unspecified “security guarantees” to Kim, as the two sides promised to continue talks. It said nothing about how the two countries would reach the goals, and moreover made no mention of “complete denuclearization.”
- Consumer Price Inflation data is due today at 8:30 am EST and is forecast to show an annual rise of 2.8% in the headline rate and 2.2% in core. There would probably have to be a major surprise in this data to derail expectations of an interest rate hike after the Federal Open Markets Committee two-day meeting which begins in Washington later.
- China’s push to eradicate smog by using more natural gas is set for takeoff. Beijing is pushing ahead with a strategy to merge under one national pipeline network that would unify transport and investment. Regulators aim to announce a decision before winter to combine oil and gas pipeline assets owned by the nation’s three state energy giants. The move, under discussion since at least 2014, would reinforce President Xi Jinping’s commitment to overhaul state-owned enterprises and streamline industrial capacity.
- British Prime Minister Theresa May faces the first of many votes before parliament today on the Brexit bill, with some members of her party holding out against her with only hours to go before the first tally. Justice Minister Phillip Lee resigned from his position to join the protesters within her Conservative party. The main amendment today would give parliament a “meaningful vote” on any deal the prime minister agrees with Brussels.
- Meetings of the Federal Reserve and the European Central Bank this week are likely to show a continued, gradual move away from the policy approach they adopted in the wake of the global financial crisis from 2010. Expectations are for the Fed to: increase interest rates by a quarter of a percentage point, keep open the possibility that the next hike could come as early as September, maintain the baseline of a total of three increases for 2018, and suggest that the balance of risks is tilted toward four hikes. The Fed begins its meeting as markets get the latest read on CPI at 8:30 am EST Tuesday.
- The oil industry will face the largest contraction of spare production capacity in more than three decades if OPEC and its allies agree next week to hike crude output. Spare capacity is the extra production that the oil producing states can bring on and sustain at short notice, providing global markets with a cushion in the event of natural disaster. Energy analysts expect OPEC and Russia to add about 500,000 bpd of production in the second half of 2018, which would reduce spare capacity as a percentage of demand to about 1.75% by December 2018. West Texas Intermediate traded at $65.99 at the time of writing.
- Greenback rose to a three week high against the yen early today, elevated by hopes that the closely watched US-North Korea summit could pave the way towards a reduction in tension, however, the dollar gave up these gains as markets saw few concrete measures emerging from the US-North Korea summit. They now wait for guidance from two of the world’s top central banks this week. The dollar’s rise against the yen, a perceived safe haven often sought in times of political tensions and market turmoil, reflected optimism that the Trump-Kim summit would open the door to the eventual denuclearisation of North Korea.