Crude helps lift commodities on OPEC Optimism as dollar weakens

Bloomberg.- Oil jumped on optimism the Organization of Petroleum Exporting Countries will agree to cut output, while metals rebounded from last week’s losses as the dollar halted its longest winning streak versus the euro.

Bloomberg’s gauge of commodities was set for its first back-to-back gains in almost a month. With an OPEC meeting next week in Vienna, Iran’s Oil Minister said it’s “highly probable” members will reach a consensus, according to comments published by the country’s Shana news service. Nickel, copper and zinc joined the rally, as rising miners and energy producers supported European equities. The dollar’s decline versus the euro was its first in 11 days. Treasuries rose, narrowing the yield premium over European bonds.

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With the OPEC meeting approaching and U.S. President-elect Donald Trump’s spending plans stoking the outlook for construction, commodity prices are attracting investor attention. Money managers, producers and consumers made the biggest bets on West Texas Intermediate crude prices in nine years, while the net-long position in copper jumped to a record high. The frenzy spilled into other metals, enhanced by buying from Asian traders.

“Market players are positioning themselves for higher prices, and oil will be in the $50-$55 range if there is a deal,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “OPEC members are building a lot of expectations and taking too much exposure to let a deal fail.”

Commodities

The Bloomberg Commodity Index, which measures returns on raw materials, advanced 1.3 percent at 7:46 a.m. in New York, set for its first two-day gain since Oct. 24. West Texas Intermediate crude rose 2.1 percent to $47.89 a barrel after climbing 0.6 percent on Friday.

Oil has rebounded since hitting the lowest in almost two months last week as OPEC members began making renewed diplomatic efforts before their meeting Nov. 30 to finalize the output deal informally agreed to in September. The group is seeking to trim output for the first time in eight years, a plan that’s been complicated by Iran’s commitment to boost production and Iraq’s request for an exemption to help fund its war with Islamic militants.

“The run-up to the OPEC meeting should be a major driver of crude oil pricing near term,” Citigroup Inc. analysts including Ed Morse and Daoyuan Zhou said in an e-mailed note. “In the months after the meeting, member countries may yet deviate from the agreement, which could add downward pressure on prices.”

Nickel rallied from a two-week low as industrial metals renewed their advance amid optimism over demand in China and the U.S. The metal used in stainless steel added 2.8 percent on the London Metal Exchange after prices slumped 3.6 percent on Friday to close at the lowest since Nov. 4. Copper jumped 2.4 percent, zinc rose 1.4 percent and gold added 0.7 percent.

Currencies

The euro advanced 0.3 percent to $1.0622, halting the 10-day drop that saw Europe’s single currency weaken 5 percent. The yen fell 0.2 percent to 110.75 per dollar, extending the 1.7 percent drop in the previous two trading days. The Bloomberg Dollar Spot Index fell for the first time in four days, slipping 0.2 percent.

South Africa’s rand led gains among major currencies, jumping 1.5 percent, as the country proposed labor law reforms a few days before a credit-rating review. Mexico’s peso rose 0.7 percent and Brazil’s real jumped 0.7 percent.
In emerging markets, Russia’s ruble advanced 0.6 percent as oil gained. The MSCI Emerging Markets Currency Index advanced 0.3 percent, following a fourth weekly decline.

Stocks

The Stoxx Europe 600 Index was little changed. Investors are turning their focus to European Central Bank stimulus, political risks ahead for the region and the recent increase in government-bond yields, which is making equities less attractive, according to Peter Dixon, an economist at Commerzbank AG in London.

“Equities look pricey when you consider the risks ahead,” he said. “The Italian referendum in two weeks’ time and concern about the future of ECB policy are starting to rise in people’s agenda. I don’t see investors taking on much more risk before the year-end.”

European stocks have been trading in a tight range most of the year and remain below their level from before the U.K. Brexit referendum. They’ve been particularly volatile in recent days, alternating between intraday gains and losses for 10 straight sessions, the longest streak since May 2013. The volume of Stoxx 600 shares changing hands was 17 percent lower than the 30-day average and commodity and energy producers were the biggest gainers, rising more than 1.8 percent.

S&P 500 futures were little changed percent after the gauge rose for a second week, closing 0.4 percent away from the record hit in August. Campbell Soup Co., HP Inc. and Deere & Co. are among companies reporting on Monday.

Shares of India’s big state-owned banks fell on concern that the government’s recall of high-value currency notes will hurt profit. State Bank of India, the nation’s biggest by assets, declined 6.7 percent, the most on an intraday basis since Nov. 9 and the worst performance on the benchmark S&P BSE Sensex, which dropped 1.5 percent.

Banco do Brasil SA climbed 5.8 percent. Latin America’s largest bank by assets said it will close 402 branches and ask employees to take voluntary retirement packages as part of an overhaul to save 750 million reais ($222 million) a year.

Bonds

Treasury 10-year notes advanced for the first time in four days days, narrowing the yield spread with benchmark German bonds, which had reached the widest levels since 1989 after the U.S. presidential election earlier this month.

Yields on Treasuries due in a decade slipped three basis points to 2.32 percent, after surging more than 20 basis points last week. Two-year note yields were little changed at 1.06 percent before an auction of the securities Monday.
The U.S. bond market has trailed behind its peers in Europe since the U.S. election as Trump’s ambitious spending plans prompted traders to ratchet up their expectations for inflation and growth. Traders see a 98 percent likelihood of the Fed raising interest rates at next month’s meeting, fed funds futures show.

Bonds slipped in Europe after being whipsawed by politics and the outlook for monetary policy. ECB President Mario Draghi, who suggested Friday that the euro region’s recovery still depends on monetary support, is scheduled to address European lawmakers in Strasbourg, France.

Germany’s 10-year bond yield rose two basis points to 0.29 percent and France’s was at 0.76 percent.

Brazil’s $3.55 billion of notes due in 2045 have lost 10 percent since Trump won the U.S. election. The slump has cut the return on the securities this year to 20 percent from 34 percent before the election.

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