Oil sits near 7-year high as OPEC+ meets

OPEC+ meets today to decide the latest oil output quotas. After a wobbly start to the year stock markets continue the recovery in February, with Fed speakers and Alphabet providing optimism before the focus turns back to the economic calendar.

• EURUSD rises for a third day ahead of euro zone inflation data
• US ADP data to provide clues ahead of Friday’s non-farm payroll
• Oil rises as the 2-day OPEC+ meeting begins

European stocks look set to continue the positive start to February today, pointing northwards after a strong finish on Wall Street.

Soothing Fed speak at the start of the week calmed fears of an overly aggressive central bank. The Fed reminded the market that any moves to tighten policy would not be disruptive. This reminder seemed to work magic for now, sending US bourses higher and the US dollar lower on the first day of February, after huge bouts of volatility across January. An upbeat corporate outlook added to the risk on mood in the market. Alphabet reported record revenue and a stock split sending the share price 8% higher after the close.

Eurozone inflation

With the ECB due to announce their interest rate decision tomorrow, eurozone inflation figures will be under the spotlight, more so than usual. Expectations are for consumer prices to ease slightly in January to 4.4%, down from December’s 5%. If Germany’s CPI data is anything to go by, the impact of the return of regular VAT rates a year ago was actually less than expected so fall in eurozone CPI could also be less marked. 

Even so, the ECB continue from the well-rehearsed song sheet that inflation is transitory, even if IT remains over double the central bank’s 2% target level and producer prices remain well over 20%, suggesting that consumer inflation still has further to run.

EUR/USD is trading around 1.1270, its highest level in a week ahead of the reading. Higher than forecast inflation could see the euro target 1.13. 

US ADP data

Looking ahead, US ADP data will be in focus ahead of Friday’s non-farm payroll report. Expectations are for 207k private payrolls to have been added in January, which is sharply down from December’s 807k, which proved to be an anomaly, after December’s non-farm payrolls came in below forecasts. The data comes hot on the heels of JOLTS job openings which unexpectedly rose in December to 10.9 million against a drop to 10.3 million forecast. 

Gold is trading lower ahead of the release, snapping a two-day winning run and moving back below $1800. It currently trades caught between key daily moving averages. A strong report today, could boost the dollar in anticipation of a solid non-farm payroll, which could see gold fall further. That said, any downside could be limited by ongoing geopolitical tensions in eastern Europe.

OPEC+

Oil prices are edging higher, looking to refresh the 7-year high ahead of the OPEC+ meeting which begins today. The group are meeting to decide whether to raise output levels in light of the recent rally in oil prices and amid growing pressure from oil importer countries. Oil prices are up around 15% already in 2022 owing to tight supply and geopolitical risks. The broad expectation is that the group will keep output levels unchanged.   After OPEC+ failed to meet production targets again in January, as in December, there seems little point in lifting production quotas further.