Market Commentary | Oil prices rally on OPEC deal

European markets broke a three-day losing streak to close Wednesday’s session in positive territory for the first time this week, with investor sentiment buoyed by a rebound in oil prices and a rally in the banking sector. Stocks in Asia closed mostly lower, while US stocks rebounded from early session lows to swing higher, after Organisation of the Petroleum Exporting Countries (OPEC) took an important step towards a cap on crude-oil output.

European equities rose broadly as shares of Deutsche Bank rebounded from all-time lows this week. CEO John Cryan told a German newspaper that the bank did not need any government assistance or a capital increase. The bank’s shares had been under pressure on worries that an anticipated multi-billion fine from the US Justice Department could damage the bank’s finances. Shares were up 1% following the news that the German lender is selling an insurance business, Abbey Life Assurance Co.

It is no secret that most benchmarks have been trading at the mercy of the oil markets in recent days, as investors track developments ahead of several key meetings. There has been lots of chatter about whether the oil producers would reach an agreement to freeze output or cut it outright. A surprise announcement was issued on Wednesday that the OPEC reached an understanding to cut crude output for the first time since 2008. This news sent oil futures up 6%, and sent energy shares rallying.

In company news, shares of Nike were trading in the red. The sportswear giant issued its quarterly report on Tuesday evening, indicating a slowdown in growth for a measure of future sales. Shares were off 3%. However, shares in its competitor Adidas were having a good day, as they added 2.13%.

Elsewhere, Alphabet was slightly lower after Google’s parent company was downgraded to underperform at Wedbush, which cited concerns about a new approach for the company’s search ads.

But shares in the travel industry were having a good day. Tui AG shares gained 1.5% after the travel operator said it was confident of delivering “between 12% and 13% growth in underlying earnings” for the year that ends on 30 September. Elsewhere, shares in airline companies were also well into positive territory. Ryan Air, Lufthansa and EasyJet all traded in the green on Wednesday.

Later in the day, all eyes were on Fed Chair Janet Yellen as she delivered a speech on the path of interest rates. Yellen said in a prepared testimony to the House Financial Services Committee that US banks are well capitalised, but remain challenged by weak interest income. She added that the central bank does not have a "fixed timetable" for raising rates.

The probability that the Federal Open Market Committee will increase rates in December has dropped to about even, from 61% a week ago, when Yellen said it made sense to put off a move for now to give the economy more room to grow. Meanwhile, investors are looking for signs that the economy is strengthening and awaiting the next earnings season, which will kick off in about two weeks’ time.

This article was issued by Rebecca Naudi, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.