OPEC and Debt Pull Markets, Aussie Jobs Upcoming

Sovereign financial woes in Europe and the United States drove a flight to safety on Wednesday. Oil surged after OPEC leaders left meeting without reaching a consensus on supply. In the upcoming session, Australia releases May employment data.

The top performers on Wednesday were JPY and USD with AUD and EUR trailing. Stocks closed lower for the sixth consecutive day with the S&P500 falling 0.4%. The euro fell after MNI (see the FX bullets in the premium section) reported that a bailout for Greece isnt a done deal. The IMF also questioned if Portugals bailout will be effective.

In the Beige Book, the Fed said growth decelerated in some regions in May but maintained that all regional economies continue to expand. They noted stress on employment, manufacturing and consumer spending; some of it due to food and energy, some due to the disaster in Japan.

OPEC Rhetoric Hollow

Leaders left Wednesday's OPEC meetings frustrated after failing to agree upon a production increase. The headlines drove an oil rally as the market focused on the lack of increase rather than the dissent. This may prove to be the wrong interpretation. OPEC is a cartel built to drive oil higher; any signs of an internal fracture are oil-negative. Also, following the meetings Saudis said they will "ensure the market is well-supplied" which means, pump more oil. Saudi Arabia is the ONLY NATION WITH MEANINGFUL SPARE CAPACITY; the rest of OPEC is cheating on its quota or at full production.

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Debt Ceiling Politics Draw Ire

In the United States, the debt ceiling situation is beginning to concern US trading partners and ratings agencies but markets so far remain unmoved. China and EU leaders warned that US politicians should not be playing a game of brinksmanship ahead of the August 2 deadline to pass legislation for a higher cap. Fitch Ratings said US TREASURIES WILL BE DOWNGRADED TO JUNK if any payments are missed. Markets still firmly believe a compromise will be reached and 10-year yields fell to 1.95% today after a strong auction. But the belief that some Republicans want to push the US into technical default to prove a point could be damaging to USD.

Asia-Pacific Preview

At 2350 GMT, Japan releases revisions to Q1 GDP. The -0.9% quarterly contraction is expected to be revised to -0.8% but may climb even higher in light of an upside surprise in yesterdays current account report.

The MAIN EVENT is at 0130 GMT when Australia releases Mays jobs report. Employment is expected to rise by 25.6K and the unemployment rate unchanged at 4.9%. In light of the dovish RBA statement, we see AUD RISKS SKEWED TO THE DOWNSIDE. A negative or near-negative reading would severely hamper the case for a rate hike in July or Aug.

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