Be grateful for small mercies. It’s a good job this 1971 T.Rex classic popped into my head as I was alighting at Wynyard station this morning, or else you might have been subjected to the ultra-cringe-worthy 1968 Dolly Parton ditty, “I’ll oil well love you” (I kid you not).

After a few days when it looked as though global markets, whether in FX, rates or equities, were no longer moving in lock-step with intra-day swings in the oil price, oil looks to be back front and centre of things this morning. Brent crude is within kissing distance of $50 for the first time since November last year (+$1.24 on the night to $49.07) while WTI crude has advanced an even bigger $1.67 to 47.88, also its best level since November. Supply disruptions in Nigeria, political instability in Venezuela and upgraded price forecasts for the second half of the year by the most well know US investment bank in the energy space, are all being cited as being somewhat responsible for the latest moves higher.

US stocks have recoupled all of Friday’s losses, the S&P up by 1% with gains led by the materials and energy sectors. In third place is information technology and where Apple is up about 3.5% on news that Warren Buffett just bought nearly $1bn worth of the stock.

In bonds, just as weaker US stocks post-Friday’s strong US retail sales and consumer confidence data ended up pulling Treasury yields lower, the stock market recovery and higher oil has now pushed nominal yields and break-evens back higher. 10s are +5.3bps since Friday’s close at 1.753% and 10-year break-evens just over 2bps higher at 1.6356%.

In currencies, and after Monday’s early-day downside forays in AUD and NZD on Saturday’s soft China data failed to attract selling, its NOK, CAD, AUD and NZD that occupy the top four spots on the G10 leader board. For AUD, this means that against the USD, the pair is ending the New York day back above its 200-day moving average. This after much excitement generated by the break below the 0.7255-60 area at yesterday’s Asia-Pacific open.

Coming Up

A fairly big day both domestically and globally with RBA May meeting Minutes at 11:30 AEDT and then tonight, US CPI and industrial production. We also get NZ inflation expectations (and remembering that last week’s Australian equivalent pulled the AUD lower), US housing starts, UK CPI and Fed speakers including Williams, Lockhart and Kaplan.

On the Minutes, if we go back to February 2015 when the RBA last initiated a mini-easing cycle, neither the post-meeting Statement nor the subsequent Minutes revealed an explicit bias regarding the prospects for further easing. However, come March it became clear both in the Statement and the Minutes that the RBA had its finger firmly on the easing trigger. As such, we might learn a lot less about the RBA’s proclivity to cut rates further today than following the March meeting.

In any event, NAB’s view is that the Board will at least want to see the Q2 inflation data before deciding whether to cut again. If the RBA does play the proverbial straight bat in the Minutes, the AUD is likely to draw a little support from this given the current state of market pricing for further RBA easing (some 41bps of further cuts).

The US data will be important tonight amid a nascent US dollar recovery and which is one key reason the AUD has fallen as much as it has in recent weeks. For the core (ex-food and energy) CPI reading favoured by policy makers, a small fall is expected, from 2.2% to 2.1%.

On industrial production, a partial recovery from the big March fall is expected (0.3% vs. -0.6%) including a 0.3% rise for the manufacturing sub-sector which represents some 76% of total production. Weakness in the latter since 2014 has been largely a function of the loss of mining investment and production due to the drop in oil prices rather than dollar strength (see Chart of the Day).

Overnight

On global stock markets, the S&P 500 was +0.98%. Bond markets saw US 10-years +5.15bp to 1.75%. In commodities, Brent crude oil +2.53% to $49.04, gold+0.3% to $1,276, iron ore -0.4% to $54.34. AUD is at 0.7289 and the range since yesterday 5pm Sydney time is 0.7284 to 0.7307.

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• Markets Today: 17 May 2016 (PDF, 1MB)

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