The three things you need to know this week: Global Oil Demand Set to Slow, Fed Cut Expectations Rising, Earnings Update on Both Sides of the Pond.
Oil Demand to Slow: The International Energy Agency (IEA) revised its 2019 global oil demand forecast lower in its most recent monthly Oil Market Report. The 2019 forecast was reduced by 90 kb/d to 1.3 mb/d. The IEA cited weaker demand growth in China, Japan and Brazil in lowering its estimate. Weaker demand caused oil inventories to rise in 1Q19, but the surplus is expected to be short-lived as demand recovers and supplies tighten due to U.S. sanctions on Iran. OPEC production is expected to remain steady as U.S. shale output should offset falling exports from Iran and Venezuela.
Rate Cut Expectations Rise: Softer economic data and the recent rally in U.S. Treasuries has increased the odds of a Fed rate cut. According to Bloomberg, the probability of a rate cut by the January 2020 FOMC meeting is nearly 80% vs. less than 60% at the beginning of May. FOMC members have pushed back against the notion of a rate cut aimed at ensuring the economy withstands the recent escalation in trade tensions with China and weak inflation data.
Earnings Update: Bloomberg data shows 91% of the S&P 500 reported earnings with revenues up 4.6% Y/Y and earnings 1.8% higher Y/Y. Relative to expectations, sales are in line while earnings have surprised to the upside by 6.4%. 90% of the companies that report in the current season for the Stoxx 600 have announced results, with sales up 3.9% Y/Y and earnings up 2.6% Y/Y. Both sales and earnings figures are slightly better than expected.