If OPEC+ and the Fed meeting aren’t enough, this is a week laden with President Joseph Biden’s tax plans for the super-rich, as well as readings for US quarterly GDP (the first for Q1, where 6.9% growth is forecast) and final consumer sentiment for April.
In other words, it's an “anything-goes” week. On Wall Street, five marquee tech names—Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL) (NASDAQ:GOOG)—are due to report blockbuster earnings from another pandemic-restricted quarter that fueled web surfing, online shopping and stay-home work and play.
Typically, when an OPEC meeting is around the corner, energy traders pay little attention to anything else. Similarly, metals traders are razor-focused when the Fed’s FOMC, or Federal Open Market Committee, convenes for its monthly interest-rates decision and—more importantly—Chairman Jay Powell’s after-the-fact news conference.
This time, however, thanks to a deluge of distractions—with Thursday’s routine weekly jobless stats becoming another must-watch before the nonfarm payrolls report for April due May 7—we can expect some idiosyncrasies at least.
And nothing may be more unsettling than Biden’s speech to the joint session of Congress on Wednesday night, where he is expected to reveal the first details of his by-now-widely-reported tax hike planned on the wealthiest of Americans.
According to the New York Times first and later Bloomberg, Biden wants to raise the federal capital gains tax to as high as 43.4% for the richest of individuals, bringing combined state and federal rates in places such as New York and California to well above 50%.
The president is targeting 0.3% of the American population to fund about $1 trillion in childcare, universal pre-kindergarten education and paid leave for workers. But he will need to overcome a major political hurdle in Congress to do so.
'Super Wednesday' Coming Up
While we await Biden’s words this Wednesday, there will also be the Fed and OPEC+ to deal with earlier in the day, making it a “Super Wednesday” by all accounts
As for OPEC+, nothing material is expected to come out of its Apr. 28 meeting, according to Russian Deputy Prime Minister Alexander Novak.
The 23-member OPEC+—which comprises the original 13 members of OPEC (i.e. the Saudi-led Organization of the Petroleum Exporting Countries) and 10 other oil producing nations steered by Russia—decided on Apr. 1 to increase output by 350,000 bpd in May and June and by more than 400,000 bpd in July.
Additionally, Saudi Arabia will also ease its unilateral cut of 1 million bpd over the same period, beginning with increases of 250,000 bpd in May and June.
OPEC Meeting 'Just To Review' The Situation
Novak said Wednesday’s meeting will likely “review the market situation once again” before the start of May-July quotas.
The Russian deputy premier said:
“We made our plans a month ago, so if nothing out of the ordinary happens in the meantime, next week’s meeting will confirm those plans or tweak them.”
The trouble is, quite a lot has happened—in India and Japan, especially, in terms of COVID.
India’s deaths are being overlooked or downplayed in a horrifying COVID crisis that could dwarf Italy’s 2020 carnage. Japan is grappling with a targeted state of emergency just three months before the Tokyo Olympics.
“Gains in oil are likely to remain capped until India and Japan, as the third and fourth-largest oil consumers, turn a corner in their battle against the virus,” said Sophie Griffiths, head of UK and EMEA research for online broker OANDA.
The one positive news on the COVID front was a New York Times report on Sunday that fully-vaccinated American tourists will be able to visit the European Union over the summer.
Both New York-traded West Texas Intermediate, the benchmark for US crude, and London’s Brent, the global gauge for oil, opened Monday’s trading lower in Asia, after losing about 1% or more last week.
Novak, speaking ahead of Wednesday’s OPEC+ meeting, described oil supplies as “balanced”, saying that if a deficit occurred, the cartel could always pump more.
For context, oil prices fell to a historic negative pricing of minus $40 per barrel in April 2020 at the height of the COVID-led demand destruction. Production cuts by OPEC+ since then helped the market stage a remarkable recovery, with the rebound accelerating after vaccine breakthroughs in November.
Oil Trades Have To Watch Iran Too
But OPEC+ also has problems beyond COVID-19.
In Vienna, Iran has been making progress with the United States on talks for a nuclear deal aimed at setting it free from Trump-era sanctions to once again export its oil. If a preliminary deal is hatched by May, Tehran could be on the way to putting as many as two million additional barrels on the market in coming months.
Were that to happen, it’s safe to presume OPEC+ will be pumping less, not more.
On the precious metals front, gold ended down last week after coming precariously close to the $1,800-an-ounce level that would have been key for it to recapture last year’s highs.
It was a crushing disappointment for gold longs who had been counting on a more meaningful advance after a nine-week high of $1,796.15 set on Friday. The last time COMEX gold traded above $1,800 was on Feb. 25.
Gold Seen Making New Stab at $1,800
In Monday’s trading in Asia, the benchmark gold futures contract opened higher. But with the weight of the Fed meeting hanging over markets, analysts said the yellow metal’s prices were likely to drift until the central bank’s monthly event and Powell’s new conference were out of the way.
“Dampening demand for safe-havens has capped the rally in gold,” said Ed Moya, analyst at New York’s OANDA. “Gold prices will likely consolidate leading up to the Fed between $1,760 and $1,800.”
Powell, in an interview with Reuters on Tuesday, said the central bank will limit any overshoot of its inflation target.
Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.