Stocks fell worldwide on the last day of the quarter, with US equity futures pointing to a lower open even as the S&P is set for its best quarter since 2015 amid persistent economic and political uncertainty.

WTI held gain above $50 a barrel, capping the biggest weekly gain of 2017 while the rand fell after South Africa’s finance minister was fired. European government bonds and Treasuries were steady with gold. Another three Fed presidents are set to speak on Friday; today’s economic data in the US includes University of Michigan consumer sentiment, as well as personal income and spending.

Global stocks dipped on Friday with the MSCI All-Country World Index declining 0.4% as investors locked in some of the more than 6% gain that has given them their best start to year since 2012, while the dollar inched toward what could be its strongest week of 2017 so far. As we look back on a particularly strong Q1, we find a remarkably quiet, and “unvolatile” quarter in which most asset classes outperformed around the world, global stocks were poised to end a blockbuster quarter with a whimper, with investors seeing little reason to take shares higher amid political and economic uncertainty in the coming quarter. As discussed last night, the saga involving Zuma and South Africa’s finance minister came to a close after he was fired, sending the plunging as much as 2.9% before recovering losses.

Asian and European shares both saw profit-taking as traders squared up for the quarter perhaps driven by an unwind of positions into Japan’s year end, though there was plenty still going, not least in South Africa where the sacking of its respected finance minister sent a spasm through the local currency.

European stocks fell for the first time in four days, with the Stoxx down -0.4%. as the Europe’s Basic Resources index where big miners are listed, fell 1.7 percent to leave London’s FTSE and the pan-European STOXX 600 index down 0.5-0.6%. Still, the later was on track for a 5% rise and third straight quarterly gain in a row, although emerging markets have been the big winners. MSCI’s EM stocks index is up 12.5 percent on a dollar-adjusted basis.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan retreated 0.55 percent after its 12.5 percent charge over the quarter. Hong Kong shares fell 0.6 percent, but were still headed for a 9.8 percent quarterly jump and China’s CSI 300 index added 0.4 percent, putting it on track for a 4.3 percent quarterly rise. Japan’s Topix became one of the few gauges in Asia posting a loss this quarter, wiping out a morning rally despite positive economic data. The Shanghai Composite Index added 0.4 percent. China’s official factory gauge climbed to the highest in almost five years, the latest evidence of gathering momentum in the world’s second-largest economy.

“Asia saw some pretty healthy profit-taking after a few sessions of solid gains, and as investors await euro zone and U.S. inflation data tonight,” said James Woods, global investment analyst at Rivkin Securities in Sydney.

Next week promises to an interesting start to the second quarter. Trump and Chinese President Xi Jinping will meet in Florida and the U.S. president has set the tone by tweeting that Washington could no longer tolerate massive trade deficits and job losses. He will also sign executive orders on Friday aimed at identifying abuses that are causing the deficits and clamping down on non-payment of anti-dumping and anti-subsidy duties on imports, his top trade officials said. Chinese Vice Foreign Minister Zheng Zeguang said on Friday that it does not have a policy to devalue its currency to promote exports, and neither does it seek a trade surplus with the United States.

“The dialogue emanating from that is going to help set the tone of the relationship between the U.S. and China and these days it goes beyond trade. There is a lot to discuss geopolitically, not least North Korea,” said PIMCO portfolio manager Yacov Arnopolin.

Against a basket of the world’s other major currencies the dollar was up 0.1 percent and close to a 1 percent weekly gain that would be its best in an otherwise lackluster year. Over the quarter the greenback has fallen 1.7%, its worst showing in a year, on doubts that U.S. President Donald Trump was not prioritizing to push through Congress the economic reforms that had driven the dollar to 14-year highs at the start of the year.

“We are relatively optimistic on global growth but we think the cyclical trade has rotated away from the Trump trade and near-term U.S. fiscal stimulus,” said Schroders’ multi-asset Portfolio Manager Angus Sippe. “We are now more optimistic on the euro zone,” he said, adding he was also “marginally short the dollar.”

The euro held its own at just under $1.07 as data showed euro zone inflation had slowed in March by far more than the economists had expected, driven down mostly by a deceleration of energy price rises. Eurozone inflation in March printed weaker than expected, as recent German CPI prints suggested, with headline CPI coming in at 1.5% vs 1.8% exp, while core inflation printed at 0.7% (also below the 0.8% exp.), and the lowest since April 2015.

There were tentative signs too that the euro zone’s weakest members would be hit the hardest by an imminent scaling back of the European Central Bank’s asset purchase program. The yield, an indication of borrowing costs, on bonds of southern euro zone states including Portugal and Italy headed higher in the final day of trading before the ECB drops its monthly purchases of debt from 80 billion to 60 billion euros. Top ECB policymaker Benoit Coeure emphasized the bank would tread carefully with any further changes.

In commodities, Brent oil and U.S. crude dipped to $52.91 a barrel and $50.35 a barrel, having zipped higher on Thursday after Kuwait backed an extension of OPEC production cuts. Oil was heading for a 6.8 percent loss for the quarter, though. In contrast gold which was at $1,241.81 has gained nearly 8 since the start of the year. Brent set for biggest weekly gain of 2017 on ongoing OPEC jawboning.  Benchmarks remain on course for biggest weekly gain of the year as expectations grow for an extension of OPEC output cuts. Brent declines slightly, near $52.75/bbl. WTI near $50.25 with rig count due later.

Yields on 10-year Treasuries rose one basis point to 2.43 percent, after climbing four basis points on Thursday. German 10-year yields were steady at 0.34%.

According to Bloomberg, investor focus in the second quarter looks set to be on whether political developments in the U.S. and Europe will cloud the a brightening global economic outlook. President Donald Trump’s setback on a flagship health-care bill has cast a shadow on his fiscal agenda, while French elections could be a litmus test for the rise of European populism.

“There’s a strong sense of political uncertainty going forward in both the U.S. and Europe,” said Masaru Hamasaki, head of the investment information department at Amundi Japan Ltd. “In the U.S., the repeal of the Obamacare replacement bill has continued to create confusion. In Europe, we’ve only just had the U.K. trigger Article 50. We’ve already essentially entered the new fiscal year, and its difficult to keep buying when you look to the future.”

Bulletin Headline Summary From RanSquawk

• European equities have seen a particularly tentative session thus far amid light newsflow on the last trading day of the quarter
• FX markets have been relatively quiet so far today, given it is month end — and year end in Japan
• Looking ahead, highlights include US PCE, University of Michigan sentiment, ECB’s Coure and Fed’s Bullard & Kashkari

Market Snapshot

• S&P 500 futures down 0.3% to 2,358.25
• STOXX Europe 600 down 0.3% to 379.44
• MXAP down 0.9% to 146.81
• MXAPJ down 0.6% to 479.90
• Nikkei down 0.8% to 18,909.26
• Topix down 1% to 1,512.60
• Hang Seng Index down 0.8% to 24,111.59
• Shanghai Composite up 0.4% to 3,222.51
• Sensex down 0.02% to 29,640.20
• Australia S&P/ASX 200 down 0.5% to 5,864.91
• Kospi down 0.2% to 2,160.23
• German 10Y yield rose 0.5 bps to 0.338%
• Euro up 0.2% to 1.0693 per US$
• Italian 10Y yield rose 1.1 bps to 2.148%
• Brent Futures down 0.6% to $52.66/bbl
• Gold spot unchanged at $1,242.64
• U.S. Dollar Index up 0.06% to 100.47

Top Overnight News

• Flynn Said to Seek Immunity to Testify in Russia Probes
• KKR Said to Woo State Funds on Deal for $12 Billion Tower Firm
• Quorum Health Holder KKR May Engage in Talks With Management
• South African Assets Tumble as Gloom Pervades Fiscal Outlook
• EU Says U.K. Only Gets Trade Talks After Progress on Brexit Bill
• AstraZeneca’s Tagrisso Wins Full FDA Approval for Lung Cancer
• Johnson & Johnson Declares Actelion Tender Offer Successful
• German Unemployment Falls to New Record Low as Economy Booms
• Berkshire Hathaway Energy Boosts 3-Year Capex Plan by $4.6b
• Denmark Teams Up With Industry Lobby to Boost F-35 Order Log
• Borgwarner Sees Hybrid Cars With Turbochargers Fuelling Growth
• Boeing Awarded $2.2 Billion Contract for 17 P-8A Poseidon Jets
• Gas Exports to Send U.S. Stockpiles to 3-Year Low Before Winter

Asian equity markets traded somewhat mixed with some slight indecision heading into month, quarter and fiscal year-end, while the region also digested firm Chinese PMI data and the positive lead from Wall St. where the NASDAQ printed fresh record highs. Nikkei 225 (-0.8%) traded lower despite JPY weakness and better than expected Industrial Production, while ASX 200 (-0.3%) was dampened by property names following tighter mortgage lending regulations. Shanghai Comp. (+0.4%) and Hang Seng (-0.7%) were mixed as strong Official Manufacturing and Non-Manufacturing PMI data was counter-balanced by the PBoC’s hiatus from open market operations which resulted to a net weekly drain of CNY 290b1n. Furthermore, stocks in Hong Kong were also pressured after PetroChina missed on earnings and the world’s largest lender ICBC posted its weakest profit growth in over a decade. Finally, 10yr JGBs were lower amid heightened risk sentiment in Japan, while the curve flattened with underperformance seen in the short end. PBoC refrained from open market operations, for a net weekly drain of CNY 290b1n vs. last week’s net injection of CNY 80bIn.

Top Asian News

• Rupee Set for Best 1Q Since 1975 as Foreigners Pour $12 Billion
• China Manufacturing Gauge Climbs to Highest in Almost Five Years
• China’s Factory Gauge Climbs to Highest in Almost Five Years
• BOJ Cuts Purchase Size Range of 1-3, 3-5 Year JGBs in April
• Battle With Apple Takes a Toll on Chinese Phone Giant Huawei
• Indian Stocks Slip Ahead of Closing Best Quarter Since June 2014
• BOJ to Purchase Fewer 1-to-5-Year Bonds in April, Rest Unchanged
• IDR, INR, TWD Post Quarterly Gains Amid Fund Inflows: Asian NDFs
• Japan Post Bank Applies to Expand Business Into Overdrafts, CDS
• China Issues Free-Trade Zone Plans for Some Regions: Xinhua
• China Benchmark Money Rate Climbs to Highest Since April 2015

European bourses remain quiet on typical Friday trade, but South African exposed companies are taking a major hit this morning. Investec (-7.5%) and Old Mutual (-7.5%) are down off the back of President Zuma sacking finance minister Gordhan. Elsewhere, markets remain quiet with Material names underperforming, albeit modestly so. Fixed income markets are also rangebound amid no real fundamental catalysts for any significant moves with markets somewhat unreactive to the latest raft of Eurozone inflation data which saw the headline Y/Y fall short of expectations (1.5% vs. Exp. 1.8%), with markets prepped for a soft figure given yesterday’s German numbers.

Top European News

• French Upset Signaled by Internet Chatter Flagging Macron Flaws
• U.K. House Prices Fall for First Time in Almost Two Years
• RBS CEO Says Bank Would Move to England on Scotland Independence
• Tusk Says ‘No Such Thing’ as a ‘Brexit Bill’ for U.K.
• Marine Harvest Warns Food Safety Authority of Suspected PD Case
• Too Early to Decide Location for Brexit Job Moves: UBS’s Orcel
• U.K. Raises $14.7 Billion in Blackstone-Prudential Mortgage Deal

In currencies, the rand plunged as much as 2.6 percent before paring losses to trade 0.7 percent lower. South African President Jacob Zuma replaced Finance Minister Pravin Gordhan and overhauled his cabinet in a late-night move that threatens to trigger a revolt against the administration. The Bloomberg Dollar Spot Index rose 0.1 percent. The euro was little changed at $1.0679 after tumbling 0.9 percent Thursday. FX markets have been relatively quiet so far today, given it is month end — and year end in Japan. Alongside some notable data releases, we sense real money flow today is keeping specs largely on the sidelines, but the USD remains near better levels as US Treasury yields build (very) modestly on yesterday’s gains. USD/JPY buying has taken the pair up to highs just shy of 112.20, but traders wary of sporadic JPY repatriation flow which could hit at any time into the London fix. EUFt/USD hit lows around 1.0670-75 before trying to reclaim 1.0700, but decent intra day selling seen here, and only tempered by the usual flow anticipated in EUFt/GBP. EU wide inflation has come in weaker than expected, but the miss is slightly less in the core rate, with ECB officials already tempering some of the reactions in the rate markets this week to limit today’s reaction. 1.0700 capping for now, but strong demand seen from the mid 1.0600’s lower down. For EURGBP, the triggering of Article 50 and the subsequent response from the EU is what will be driving trade from here, but we saw strong demand just below 0.8550 this morning, generating an initial test back to 0.8600 recently.

In commodities, West Texas Intermediate crude fell 0.1 percent to $50.31, paring some big gains on Thursday that were spurred by a report Kuwait and other countries support prolonging production cuts. Oil prices remain buoyed this morning, with WTI notably holding above USD50.00, but looks fragile at present as the USD seems to have found fresh life. Lower than expected rises in inventory levels as reported from the API and DoE this week have been key to this, as have comments that discussions are in process on a potential extension to the production cut agreement. Iron ore prices under pressure due the stockpiles reported, but copper prices notably resilient. Gold edged lower on the back of the latest move higher in US Treasuries, but the yellow metal has held off USD1240 so far today. Silver remains above USD18.00.

Looking at the day ahead, it’s a busy day in the US this afternoon and headlined by the personal income, spending and PCE deflator data for February. Expectations is for a +0.2% mom rise in personal spending and +0.4% mom rise in income, while the deflator is expected to increase +0.1% mom. Away from that we will also get the March Chicago PMI before we finish the day with the final revisions to the University of Michigan consumer sentiment data for March. Away from the data there is more Fedspeak scheduled with Dudley, Kashkari and Bullard due to speak.

US Event Calendar

• 8:30am: Personal Income, est. 0.4%, prior 0.4%
  • Personal Spending, est. 0.2%, prior 0.2%
  • Real Personal Spending, est. 0.1%, prior -0.3%
  • PCE Deflator MoM, est. 0.1%, prior 0.4%, PCE Deflator YoY, est. 2.1%, prior 1.9%
  • PCE Core MoM, est. 0.2%, prior 0.3%, PCE Core YoY, est. 1.7%, prior 1.7%
• 9:45am: Chicago Purchasing Manager, est. 56.9, prior 57.4
• 10am: U. of Mich. Sentiment, est. 97.6, prior 97.6, Current Conditions, prior 114.5, Expectations, prior 86.7,
  • 1 Yr Inflation, prior 2.4%
  • 5-10 Yr Inflation, prior 2.2%

Central Banks

9am: Fed’s Dudley Speaks to Mike McKee in Bloomberg TV Interview
10am: Fed’s Kashkari Answers Questions at Banking Conference
10:30am: Fed’s Bullard Speaking in New York

DB’s Jim Reid concludes the overnight wrap

A big factor for the strong performance in Q1 has been the incredibly calm start to the year as evidenced by what various measures of volatility have done this quarter. Indeed at the close of last night the VIX is now at 11.54 and just a shade above the January low of 10.58. It’s also down from 14.04 at the end of Q4. FX vol as measured by the CVIX (DB’s currency vol index of 9 major currency pairs) is now at 9.02 and also near the bottom of the range having started the year at 11.03.

We thought it would be interesting to put into context how low volatility has been in Q1 this year compared to Q1’s over the last 10 years. The VIX has traded in just a 5.14pt range this year using the intraday high to lows over the full quarter. The second lowest range in the VIX over the last 10 years came in 2014 when the range was 9.67pts while the highest came in 2009 when the range was 20.48pts. The average Q1 range from 2008 to 2016 was in fact 14.04pts. The highest level the VIX has hit in 2017 so far is 15.11 while the high points from the prior 9 year range from 21.48 to 57.36. In fact the high print for Q1 this year would rank as the sixth lowest level in the prior 9 Q1’s. So anyway you cut it this has been an incredibly low Q1 for volatility over the last decade.

As we highlighted in the EMR yesterday global economic data surprises are hovering around 6 and a half-year highs and it is interesting that this has coincided with US political uncertainty – as measured by the Baker, Bloom & Davis index – hitting the lowest level in the Trump-presidency era yesterday and in fact the lowest level since October 10th.

That backdrop is proving supportive for risk. Last night the S&P 500 closed up +0.29% and finished higher for the third day in a row. The index is also all of a sudden back to within just 33 points of the all-time high made at the start of this month. Unlike Wednesday banks were the big driver of the broader move higher yesterday with US banks finishing up +1.48%. That move came after Treasury yields reversed course for the fourth day in a row reflecting some fairly hawkish Fedspeak over the last 36 hours or so and a bigger than expected revision to Q4 GDP in the US. 10y Treasury yields closed 4.3bps higher at 2.421% and in fact are pretty much back to where they closed last Friday despite moves of at least 3.4bps up or down each day this week. Energy stocks also contributed positively yesterday after WTI Oil (+1.70%) rose for the third day in a row and finished above $50/bbl for the first time in 3 weeks with more suggestions that the OPEC production cut will be extended beyond the initial timeframe agreed.

Over in Europe equity markets also edged higher with the Stoxx 600 closing up +0.51%. Bonds were more mixed though and 10y Bund yields in fact edged down 1.1bps to 0.328%. A disappointing CPI print in Germany for March didn’t help (+0.2% mom vs. +0.4% expected) ahead of the wider Euro area reading today while the ECB’s Nowotny – who as a reminder a couple of weeks ago said that the ECB could raise the deposit rate before the prime rate – suggested that the ECB doesn’t want to prematurely raise interest rates and that there is no reason right now to deviate from the already defined monetary policy strategy for 2017.

Jumping quickly to the overnight session now where there has been a steady stream of both significant data and political related headlines. In China the official March PMI’s have been released. The manufacturing PMI has risen two-tenths to 51.8 this month (vs. 51.7 expected) and the highest since April 2012. The nonmanufacturing PMI has also risen to 55.1 from 54.2 and the highest since May 2014. That’s helped bourses in China to rise with the Shanghai Comp and CSI 300 +0.40% and +0.45% respectively. Elsewhere, in South Korea a court has ordered the arrest of former President Park Guen-hye following the issue of a warrant in connection with bribery and abuse of powers. The Kospi is little changed following the news. Over in EM the big story is out of South Africa where President  Zuma has dismissed finance minister Pravin Gordhan and 8 other cabinet members, which in turn is heightening political uncertainty in the country again. The news has caused the Rand to sell off sharply and is currently down about -3.60% from when the headlines broke. Finally in Japan core CPI was reported as rising +0.2% yoy in February and up for the second month in succession, while industrial production and jobless rate data also showed signs of improvement. Household spending data was a little softer than expected however. The Nikkei is +0.66% following that and the Yen a touch firmer.

Back to that data yesterday, where in the US Q4 GDP was revised up in the third and final revision to +2.1% qoq annualized from +1.9%. Growth in PCE was revised up five-tenths to +3.5% qoq annualized while corporate profits were recorded as growing modestly in the quarter by +0.5% qoq. That means corporate profits have now risen for two consecutive quarters for the first time since Q3 and Q4 of 2014. Elsewhere, initial jobless claims nudged down 3k last week to 258k. In Europe the only other data was the European Commission’s economic sentiment index which edged down 0.1pts to 107.9.

In terms of the Fed speakers, late last night NY Fed President Dudley said that he favours tapering reinvestments of the balance sheet “gradually and predictably” instead of outright ending them. Dudley also confirmed that the 2% inflation target for the Fed is not a ceiling and that risks for both economic growth and inflation over the medium to longer term are gradually shifting to the upside. Our favourite line from Dudley yesterday though was his reference to William McChesney Martin – the ninth and longest serving Fed Chair who famously said that the job of the Fed is to “take away the punch bowl just as the party gets going”. Dudley last night said that “I don’t think we are removing the punch bowl yet” but that “we’re just adding a bit more fruit juice”. Meanwhile the Dallas Fed’s Kaplan confirmed that two more hikes this year is a “good base case” although didn’t rule out more depending on how the economy evolves.

Looking at the day ahead, this morning in Europe we’ll be kicking off in Germany where the February retail sales data is due out before we then get the latest Nationwide house prices data in the UK for the month of March. Following that we’ll get CPI and PPI data out of France before Germany then releases unemployment data for March. It’s back to the UK after that where the final revisions to Q4 GDP will be released before we then get March CPI for the Euro area where consensus is for a slight dip in both the headline and core readings to +1.8% yoy and +0.8% yoy respectively. It’s just as busy in the US this afternoon and headlined by the personal income, spending and PCE deflator data for February. Expectations is for a +0.2% mom rise in personal spending and +0.4% mom rise in income, while the deflator is expected to increase +0.1% mom. Away from that we will also get the March Chicago PMI before we finish the day with the final revisions to the University of Michigan consumer sentiment data for March. Away from the data there is more Fedspeak scheduled with Dudley (2pm BST), Kashkari (3pm BST) and Bullard (3.30pm BST) due to speak. The BoE’s Haldane is due to speak this evening while the ECB’s Coeure speaks this morning.

Secretary of State Rex Tillerson tried to reassure America’s nervous European counterparts over Washington’s commitment to NATO on Friday but it didn’t quite work out as expected when he pressed them again to spend more on defense, triggering a sharp rebuke from Germany.

“As President Trump has made clear, it is no longer sustainable for the U.S. to maintain a disproportionate share of NATO’s defense expenditures,” Tillerson said at a meeting of allied foreign ministers in Brussels.

Repeating what Trump told Angela Merkel during her US visit (when the US president reportedly handed the Chancellor an invoice for $375 billion for “overdue” NATO defense expenses) Tillerson said he wants member states of the North Atlantic Treaty Organization to agree at their summit in May to increase such spending by the end of the year or to make concrete plans to reach? 2% of gross domestic product by 2024—a target the Germans have contested.

What set off NATO ally anger however was Tillerson’s suggestion that the U.S. would prefer to micromanage the process, and wants to see annual milestones that would ensure the defense investment pledge? is implemented by the 2024 deadline, the WSJ reported.

NATO Foreign Ministers take part in a meeting at the Alliance’s headquarters
in Brussels, Belgium March 31, 2017. REUTERS/Yves Herman

Germany’s Foreign Minister Sigmar Gabriel was particularly incensed, acknowledging that while Germany should spend more, he said demands for spending 2% of GDP were “totally unrealistic.” To meet the U.S. target, he said, Germany would have to increase spending by some €35 billion ($37 billion).

“Two percent would mean military expenses of some €70 billion. I don’t know any German politician who would claim that is reachable nor desirable,” Gabriel told the first meeting of NATO foreign ministers attended by Tillerson.

“The United States will realize it is better to talk about better spending instead of more spending,” he said, noting that humanitarian, development and economic aid to stabilize countries and regions should also count.

As the WSJ adds, Gabriel declined to answer questions about whether Germany intended to develop the kind of spending plans pushed by the U.S. Raising German military spending—now at about 1.2% of GDP—has long been seen by the U.S. as key to Europe shouldering more of its own defense.

Gabriel, a member of the left-leaning Social Democratic Party, has stepped up his criticism of further spending increases as September elections near, arguing that a strong defense isn’t enough to ensure security.

 

German Chancellor Angela Merkel, of the ruling Christian Democrats, has been more supportive of increased military spending than the SPD, who is a junior partner in her governing coalition.

Germany’s anger erupted first shortly after Trump’s meeting with Merkel earlier this month, when he made waves in Berlin by tweeting that “Germany owes…vast sums of money to NATO,” an accusation that roiled German officials.

Despite Germany’s rebuke, NATO Secretary-General Jens Stoltenberg embraced the push by the U.S. and said Europe must raise its spending and improve its military capabilities. “Increased military spending isn’t about pleasing the United States. It is about investing more in European security because it is important to Europe,” Stoltenberg said.

Stoltenberg noted that the U.S. has demonstrated its commitment, including by adding troops in Eastern Europe this year as part of a force meant to deter Russia. While Stoltenberg rejected Gabriel’s call to include non-military spending toward the goal, he said Germany was moving “in the right direction” with more military spending after years of cuts.

* * *

Meanwhile, Tillerson remained unswayed, and said allies will need to pay up or outline plans for meeting that target when NATO leaders meet on May 25 – the first NATO which will be attended by Trump himself. Trump has famously criticized NATO as “obsolete” and suggested Washington’s security guarantees for European allies could be conditional on them spending more on their own defense. He has also said he wants NATO to do more to fight terrorism.

“Our goal should be to agree at the May leaders meeting that by the end of the year all allies will have either met the pledge guidelines or will have developed plans that clearly articulate how…the pledge will be fulfilled,” Tillerson said.

U.S. defense expenditure makes up about 70 percent of the total NATO allies’ defense spending. Only four European NATO members – Estonia, Greece, Poland and Britain – meet the two-percent target.

While US demands for more money from NATO allies did not sit well with Germany, Tillerson did offer assurances of Washington’s commitment to NATO during his brief stop in Brussels, although U.S. officials said he did not have time for one-on-one meetings, which according to Reuters are customary during such gatherings. As previously reported, Tillerson’s initial decision to skip his first meeting with NATO foreign ministers while keeping his commitment for a trip to Russia, sparked a media frenzy added to questions about the Trump administration’s commitment. The meeting was later rescheduled and he attended on Friday.

“The United States is committed to ensuring NATO has the capabilities to support our collective defense,” Tillerson said. “We will uphold the agreements we have made to defend our allies.”

* * *

Finally, in keeping with the recent momentum of renewed deterioration in relations US-Russian relations, Tillerson said NATO was fundamental to countering Russian aggression in Ukraine. As Bloomberg reports, “Tillerson sought to assuage worries that the new administration would seek closer ties with Russia at NATO’s expense, particularly after Trump said during the 2016 presidential campaign that the alliance was “obsolete.”

“Let me be very clear at the outset of my remarks: the U.S. commitment to NATO is strong and this alliance remains the bedrock for trans-Atlantic security,” Tillerson said Friday in Brussels. “The NATO alliance is also fundamental to countering both nonviolent, but at times violent, Russian agitation and Russian aggression.”

He said U.S. sanctions on Russia for annexing Crimea “will remain until Moscow reverses the actions that triggered our sanctions” and “we will continue to hold Russia accountable.”

Defense Secretary James Mattis, a retired general known for his straight talk, was even more outspoken. At a briefing in London on Friday, he said Russia’s “violations of international law are now a matter of record — from what happened with Crimea to other aspects of their behavior in mucking around inside other people’s elections, that sort of thing.”

 

It was a blunt reference to Russia’s hacking and leaking of Democratic documents in last year’s American presidential election, a campaign that U.S. intelligence agencies found was aimed at hurting Trump’s rival Hillary Clinton and ultimately at helping him win.

Meanwhile, as relations between the Kremlin and the White House deteriorate with every passing day before Trump has even met with Putin, accusations that Trump is a puppet of the Kremlin remain the topic du jour across the US media.

For the 11th week in a row, the number of US oil rigs rose (up 10 to 662 – the highest since September 2015). US Crude production continues to track the lagged rig count, pouring more cold water on OPEC’s production cut party.

The rig count grows, tracking the lagged oil price in a self-defeating cycle…

And crude production appears to have plenty more room to run…

And don’t forget, as Nick Cunningham detailed, there are thousands of drilled shale wells are sitting idle, unfracked and uncompleted.

(Click to enlarge)

Once the DUCs are completed, new production will come online. And just as before, that backlog still weighs on the market. Wood Mackenzie estimates that if the Permian Basin’s DUC list was completed, it would add 300,000 bpd in new supply.That supply sitting on the sidelines will put downward pressure on any new oil price rally.

And worse still, as OilPrice.com’s Tsvetana Paraskova, it seems the Saudis are starting to panic at the loss of market share… Abundant supply of light oil in Asia and weaker demand amid some seasonal refinery maintenance will likely prompt Saudi Arabia to cut the official selling price for most of its crude varieties bound for Asia in May.

At the beginning of March, Saudi Arabia unexpectedly lowered the April price for the light crude it sells to Asia. According to trade sources who spoke to Reuters, Saudi Arabia’s official selling price (OSP) for Arab Light was set for April at the low end of the range expected by a Reuters survey. At that time, the price for Arab Extra Light was cut by $0.75, which was more than expected.

For the May OSP, according to a Reuters survey of four Asian refiners, Saudi Arabia would likely cut the price of its Arab Light crude by $0.10-$0.40 per barrel from the April OSP.

“I’m seeing price reductions across the board,” one of the refiners surveyed told Reuters.

The Arab Light and Arab Extra Light grades prices are expected to drop more than the medium and heavy grades, since the Asian market is oversupplied mostly with light oil varieties, according to the sources Reuters has polled.

OPEC’s output cuts have made it profitable for oil traders to send crude from as far as the U.S., the North Sea and West Africa to Asia, and this has weakened demand for spot market purchases from Middle Eastern grades.

Another respondent in the Reuters survey for May prices said:

“The spot market is weak. Almost every type of crude is sold at discount against its OSP.”

Saudi Arabia releases OSPs for its grades around the fifth of each month, and as a policy Saudi Aramco does not comment on the monthly prices that Saudi Arabia is setting. The Saudi OSPs generally establish the trend for the prices that Iran, Kuwait, and Iraq charge for Asia-bound crude.