Daily Market Commentary 6th June 2023

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OPEC+ met over the weekend in Vienna, agreeing to hold the reduced production levels until the end of 2023, when further supply cuts will come into force. The OPEC+ nations have seen the recession in Europe and the possible recession in the USA and decided to be pro-active, cutting supply in anticipation of flagging demand. This was to be expected and oil prices only jumped at the margin. The supply versus demand reality, will determine oil prices, for the remaining months of this calendar year. Energy prices in Europe have calmed, but the sanctions on Russia remain, so Europe continues to pay well above market levels for their ‘processed’ oil and gas supply . The subsidised energy prices are included in inflation data from Europe, so any reduction in subsidies or upward spike in prices, could reenergise inflation, once again. Services and Composite PMI data in Europe was lower than expected, but remains in expansionary territory, unlike the dire Manufacturing PMI numbers. The US Dollar remained steady, as Bond Yields crept higher, following the better than forecast Non-Farm Payroll number, which blew away market expectations. The EUR held above 1.0700, while the GBP also traded above 1.2400.

Local markets await the RBA rate decision today, with markets expecting the Central bank to extend their ‘pause’ in interest rate rises, awaiting the impact of flow-through rate rises already implemented. Inflation remains in Australia, but there is immense political pressure to keep a lid on rates, as consumers are heavily exposed to mortgage debt. The RBA has been far too dovish throughout the inflationary cycle and are paying the price. They are hoping that flagging inflation globally, will spread and be imported into Australia. The lower rates have created international differentials that make the AUD an unattractive destination. The NZD consolidates above 0.6000, while the AUD awaits the RBA rate decision, trading around 0.6600.

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