US stocks joined world markets in rallying even as US manufacturing dropped unexpectedly. Oil markets brace for OPEC to announce it will continue to pump into a glut, squeezing out shale producers to maintain market share.
By Vikram Rangala
Tuesday, December 1, 2015
US stock indices dropped following the surprisingly dismal manufacturing report, but recovered most of the loss within the hour. Overall, low unemployment and nearly 70 straight months of job creation seem to be offsetting any concerns about a December interest rate increase. As the end of quarter rebalance approaches and funds look to shed losers and show profitable numbers, fears about the rate hike (justified or not) may already be priced in.
The Institute for Supply Management’s manufacturing index dropped to 48.6 in November, the lowest level since June 2009 and weaker than all forecasts in a Bloomberg survey. A reading below 50 indicates contraction. A second set of numbers from Markit Economics showed US manufacturing expanded at a slower pace in November.
Industries tied to energy and agricultural commodities were especially weak. The ISM report showed that manufacturers slowed production in response to larger inventories held by their customers. Weak global demand and a strong dollar have weakened sales of those inventories.
Similar inventory and supply-demand imbalances caused China’s manufacturing PMI to continue its contraction as the IMF included the yuan in its SDR currency basket, the fund’s foreign exchange reserve. European manufacturing, on the other hand, gave further signs of a euro area recovery, with Germany reporting its lowest unemployment rate since reunification.
As the Paris Climate Summit continues with optimistic signs of a final agreement on carbon emissions, OPEC prepares to meet to discuss and probably do nothing to curb its production. Saudi Arabia has already signaled no intention of reducing oil production.
Meanwhile, non-OPEC production, which has soared in the last few years, shows signs of topping out and even dropping, with most rigs at full output already. With supply showing no signs of reducing, net-long positions in WTI crude have fallen by nearly 50% since October.
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