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US Dollar on the Offensive; Oil Prices Slump with Output Boost
Published May 25, 2018
North Korea has expressed disappointment that President Trump canceled the June 12 leaders summit in Singapore. Vice-foreign minister Kim Kye Gwan said President Trump’s decision was “extremely regrettable”. The US administration has blamed the North’s “open hostility” for the cancellation. South Korean President Moon Jae-In said he was “very perplexed” and that it was “very regrettable” that the summit was not going ahead. The MSCI Asia Pacific Index and Japan’s Topix Index both closed lower as investors gauge the unfolding situation.
Saudi Arabian Energy Minister Khalid Al-Falih said his country is discussing easing output curbs with Russia for the first time. The Russian Minister of Energy Alexander Novak said loosening production-cut targets will be discussed at a meeting of the Organization of Petroleum Exporting Countries and its partners next month. The ministers, along with their counterpart from the United Arab Emirates, discussed an output increase of about 1 million barrels per day. Brent crude futures were down to $77.28 a barrel, while West Texas Intermediate crude futures were at $69.34 a barrel. Speaking in St. Petersburg, Khalid Al-Falih said the easing of restrictions on pumping levels would be gradual to avoid a shock to the market. Later today, the latest Baker Hughes rig count will be released providing more information for investors to consider over the weekend.
European investors remain fixed to geopolitical uncertainties throughout the euro-zone. The European Union has once again rejected UK’s Brexit plans for the country’s relationship with the bloc after the exit. This comes as Italy’s populist parties’ coalition have included plans to upend the country’s banking sector, which analysts have noted could significantly impact bank valuations. Similarly in Spain, Prime Minister Rajoy is facing heightened scrutiny despite the successful passing of the state budget. The main Spanish opposition party has proffered a motion of no-confidence in the leadership after former aides to the prime minister were convicted of euro corruption racket charges.
The US dollar returned to the offensive heading into the weekend as all eyes turned to an upcoming speech from Fed Chair Jerome Powell. The Fed chairman will address financial stability and central bank transparency at an event in Stockholm. These sentiments may echo similar speeches delivered this month as spillover risks will not delay the US tightening cycle. Meanwhile, the Japanese yen turned lower as prices digested the sharpest two-day rally in a year.