(Bloomberg View) -- It was around this time last month that the oil market began to tank amid signs that global stockpiles were on the rise and a deal by OPEC members to curb supply was starting to crack. Fast forward to today, and oil traders are starting to believe that OPEC may be able to steady the market.
The price of crude is very close to completing a round trip from about $53 a barrel on March 6 to almost $47 on March 21. Although U.S. government data Wednesday showed crude output rose for a seventh week and supplies expanded, the price of oil reached approached $52 today to extend a rally sparked last week after some OPEC countries supported a possible extension of their six-month deal trimming output. Production halts in the U.K. North Sea and Canada have since helped to bolster prices, according to Bloomberg News' Mark Shenk.
Organization of Petroleum Exporting Countries Secretary-General Mohammad Barkindo said Sunday he's “cautiously optimistic that the market is already rebalancing.” "The strength of the market is predicated on expectations that we will see an agreement to extend the curbs," said Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut.
FED STOCK WORRIES ARE SO YESTERDAY
The jump in oil prices gave a boost to equities, with energy-related shares leading the S&P 500 Index higher. The S&P 500's gain came close to erasing its loss from Wednesday, when minutes of the Federal Reserve's March 14-15 meeting showed that “Some participants viewed equity prices as quite high relative to standard valuation measures.” “Some measures of valuations, such as price-to-earnings ratios, rose further above historical norms," the central bank noted. The VIX index eased to 12.4, meaning the volatility gauge hasn't risen above 15 for 101 days, the longest stretch since 2007, according to Bloomberg News' Oliver Renick.
ENJOY IT WHILE IT LASTS
Investors may soon find out whether the Fed's worries are justified. Earnings season kicks off next week when three of the four largest U.S. banks report first-quarter results. Bank of America Merrill Lynch says earnings for investment-grade rated U.S. companies are forecast to rise 9.4 percent from a year earlier, compared with 5.4 percent in the fourth quarter and 2.3 percent in the third quarter. This might be as good as it gets, judging by comments from two of Wall Street's most influential CEOs. BlackRock's Fink said Thursday that U.S. growth is slowing on concern about whether the Trump administration's agenda will get through Congress. JPMorgan Chase's Jamie Dimon lamented that “it is clear that something is wrong” with the nation in a letter to investors Tuesday. Both CEOs are part of a group of business leaders that advise President Donald Trump.
BOND MARKET SHRUGS OFF INFLATION CONCERNS
Fixed-income traders seem to agree with Fink and Dimon, signaling that the rise in oil may curb consumer spending more than it adds to inflation. Breakeven rates on five-year inflation-protected bonds, or the inflation rate that traders see over the life of the securities, have fallen to their lowest levels since the first half of January. That's significant because it's believed that rising inflation expectations are one key variable that allowed Fed policy makers to suggest that they are ready to accelerate the pace of interest-rate rate increases. An appendix to the records of their March 14-15 meeting, published Wednesday, showed the total number of officials who see a chance of better-than-forecast outcomes for employment and inflation rose to the highest since the Fed began publishing the assessments with the January 2012 meeting.
CZECHS SHOW CURRENCY MARKET HOW IT'S DONE
All eyes in the foreign-exchange market were locked in on the Czech Republic today. Yes, the Czech Republic. The koruna was the world's best performing currency, appreciating as much as 1.43 percent after the nation's central bank cut its currency loose from a one-sided peg against the euro. The Czech National Bank's board voted Thursday to exit the Swiss-inspired mechanism that kept the koruna weaker than 27 per euro after inflation returned to target. The move may prove disappointing to investors who had piled into Czech assets hoping for a quick profit once the bank lifted the cap, according to Bloomberg News' Peter Laca, Krystof Chamonikolas and Ladka Bauerova. Policy makers vowed to avoid a scenario similar to that triggered by their Swiss colleagues in 2015 when, without warning, they dropped a cap on their currency, sparking a 29 percent surge in the franc in a single day.
TEA LEAVES
The monthly U.S. employment report will be released Friday and the median estimate is that 180,000 jobs were created in March. But according to the strategists at FTN Financial, the number that matters to markets is 225,000. They come to that figure by looking at the last two jobs reports, which exceeded the consensus by an average of 45,000 and adding that to this month's estimate. BMO Capital Markets' bond strategists say the markets already assume the labor market will continue to show gains, so the real number that matters is the one that shows whether wages are growing -- or falling. In their opinion, the Fed's reaction function is more closely linked to the inflation side of its duel mandate because the minutes from the central bank's last meeting revealed that "all Fed officials saw the U.S. at or near maximum employment."
If you'd like to get The Daily Prophet in e-mail form, right in your inbox, please subscribe to this link. Thanks!
DON'T MISS
What the Trump-Xi Meeting Will Mean for Markets: Komal Sri-Kumar
Market Prejudices Lead to Big Mistakes for Investors: Mark Grant
Traders Need to Give the Euro and Pound Respect: Jason Schenker
Aramco IPO Is Just First Step for Saudi Arabia: John Sfakianakis
Japan Can Teach U.S. How to Overcome National Rot: Noah Smith
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Robert Burgess is editor of Bloomberg Prophets.
To contact the author of this story: Robert Burgess at bburgess@bloomberg.net.
To contact the editor responsible for this story: Max Berley at mberley@bloomberg.net.
For more columns from Bloomberg View, visit http://www.bloomberg.com/view.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
