Stocks in Asia were set to trade higher on Thursday as investors digest recent developments on U.S.-China trade.
Futures pointed to a higher open for Japanese stocks, with the Nikkei futures contract in Chicago at 23,350 while its counterpart in Osaka was at 23,360. The Nikkei 225 last closed at 23,135.23.
Meanwhile, shares in Australia jumped in early trade after leading losses among regional markets on Wednesday, with the S&P/ASX 200 gaining about 1%. Investors will watch for the release of Australia’s merchandise trade and retail sales data for October, set to be released around 8:30 a.m. HK/SIN.
On the economic front, the Reserve Bank of India is expected to announce its interest rate decision at 2:15 p.m. HK/SIN.
US-China trade confusion
Investor reaction to overnight developments on U.S.-China trade will be watched, after a news report from Bloomberg said Washington and Beijing were edging closer to a trade deal.
The Bloomberg report, which cited people familiar with the talks, said the two countries were moving closer to agreeing on the amount of tariffs that would be rolled back in a so-called phase-one trade deal. President Donald Trump also said Wednesday that trade talks with China were going well.
That came just a day after Trump said Tuesday he may delay a trade deal with China till after the 2020 U.S. presidential election, leading to a sell-off across markets globally. The recent developments come ahead of a closely watched date of Dec. 15, when additional tariffs on Chinese exports to the U.S. are set to go into effect.
Overnight stateside, the major indexes rebounded from a 3-day losing streak following the Bloomberg report. The Dow Jones Industrial Average closed 146.97 points higher at 27,649.78 while the S&P 500 gained 0.6% to end its trading day at 3,112.76. The Nasdaq Composite advanced 0.5% to close at 8,566.67.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was last at 97.602 after earlier seeing highs above 97.7.
What’s on tap:
- Australia: Merchandise trade and retail sales data for October at 8:30 a.m. HK/SIN
- India: Reserve Bank of India interest rate decision at 2:15 p.m. HK/SIN
— CNBC’s Fred Imbert contributed to this report.
Oil jumps more than 4% on eve of OPEC meeting
Oil gained more than 4% on Wednesday, as a larger-than-expected drop in U.S. inventories and hopes of deeper production cuts from OPEC lifted prices.
U.S. West Texas Intermediate crude futures gained $2.33, or 4.2%, settling at $58.43 a barrel. It was WTI’s third straight day of gains, and its best day since September. Brent crude futures gained $2.31, or 3.8%, to reach $63.14.
A surprise drop in stockpiles was among the factors pushing oil higher.
U.S. inventories decreased by 4.9 million barrels for the week ending Nov. 29, the U.S. Energy Information Administration said on Wednesday. That was more than three times the 1.4 million decrease that analysts polled by FactSet had been expecting.
Data from the American Petroleum Institute released Wednesday showed a drop of 3.7 million barrels, compared to estimates of a 1.7 million barrel decrease.
Oil also got a boost from talk of deeper production cuts.
OPEC’s biannual meeting kicks off Thursday in Vienna, where the 14-member group will discuss the next phase of their oil production policy. On Friday, OPEC and its allies — known as OPEC+ and which includes Russia — will meet.
OPEC+ has cut output by 1.2 million barrels per day since the beginning of the year. The current deal runs through March of 2020.
Ahead of Thursday’s meeting, Iraqi oil minister Thamer Ghadhban suggested that the members might be leaning towards steeper cuts, which would see production reduced by an additional 400,000 barrels per day.
But Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, was quick to note that Wednesday’s surge brings oil back to where it traded last week, before Friday’s sell-off on comments from Russian Energy Minister Alexander Novak.
“This move essentially is re-calibrating crude prices to reflect lower odds that the deal is not extended and higher odds of deeper cuts,” she said to CNBC.
While she attributed Wednesday’s action to an increased probability of deeper cuts, she noted that it’s not yet a given. “Iraq’s credibility regarding additional output cuts could be questioned, as they have yet to comply with the original cuts imposed as part of the OPEC+ agreement,” she said.
Earlier in Wednesday’s trading session oil had pared some of its gains following a Dow Jones report that Saudi Arabia might boost production if other OPEC members do not comply with the current production cut stipulations. This followed a Reuters report on Monday that Saudi Arabia could be in favor of deeper cuts in order to give Aramco a boost as it hits the public market.
– CNBC’s Sam Meredith contributed reporting.
Tesla Roadsters to get better service options, company promises owners
James Whittaker’s green Tesla Roadster at Medlock & Sons garage in Seattle.
Andrew Evers, CNBC
Tesla has been reaching out to its earliest customers — Roadster owners — in recent weeks, acknowledging that service for their vehicles hasn’t been ideal, and promising them a new “dedicated channel” with its own service advisors, technicians and repair centers.
In an e-mail shared with CNBC by multiple owners of the original Roadster, Tesla’s President of Automotive, Jerome Guillen, wrote: “We appreciate your continued and pioneering support for Tesla. We realize that we need to improve service for Roadster.” Guillen also invited Roadster owners to trade in their old cars and put the value towards buying a newer-model Tesla, or a reservation for a next-generation Roadster.
As Tesla scales, service can become a bigger potential revenue and profit center for its business. But it’s not clear whether service will become a selling point for the company any time soon. During Tesla’s 2019 second-quarter earnings call, Musk acknowledged the daunting task before him. He said: “Obviously if we’re doubling our fleets every year, managing service, it is quite difficult.”
Tesla did not immediately respond to requests for comment.
Roadster owners felt left behind
As CNBC has previously reported, many of the electric car enthusiasts who purchased Tesla’s debut vehicle felt neglected after the company began to focus on the Model S in 2012, and other models after that.
The original Tesla Roadster was made and delivered to customers from 2008 to 2012, meaning the cars are between seven and 11 years old today. Because the average age of vehicles in use in the U.S. is around 12 years, most automakers work to ensure their cars can be easily repaired for a dozen years or more.
But, as Tesla employees and former employees told CNBC, Tesla no longer manufactures spare parts for its original Roadsters, nor does it enable drivers to book Roadster service appointments through the same apps that other Tesla customers can rely on.
Jerome Guillen, vice president and head of sales and service for Tesla.
Uli Deck | AP
Delivering great service is increasingly important for automakers as new vehicle sales growth is slowing down overall, says Hans-Werner Kaas, Senior Partner at McKinsey and Company.
“OEMs [automakers] are taking a holistic view of service that includes the parts they offer, distribution channels, and in some cases non-dealer repair shops or service points,” Kass wrote in an e-mail to CNBC. “High-end OEMs constantly think about the customer service experience and view it as a key driver of customer loyalty. They seek repeat purchases rather than the sale of more parts.”
Tesla CEO Elon Musk frequently says that electric cars require less maintenance than counterparts with internal combustion engines. That’s a big potential selling point for electric vehicles, and a reference to items like motor oil, oil filters, engine air filters, transmission fluid, spark plugs and more that require annual maintenance and habitual replacement.
But electric vehicle owners can face unique maintenance needs, as well. Aftermarket products like ride control and tires may require frequent service or replacement due to the higher curb weight and acceleration of electric vehicles, for example, notes Kass.
Electric vehicles also require fundamentally different skills from the technicians who work on them.
Here’s the e-mail that Guillen sent to original Tesla Roadster owners:
“Dear [Name removed],
According to our records, we believe you own Roadster [VIN number removed]. If you are receiving this email in error, no longer own a Roadster or need to update your contact information, please let us know by replying to this email.
We appreciate your continued and pioneering support for Tesla. We realize that we need to improve service for Roadster- we are putting in place a dedicated channel to help you with all your Roadster needs. This means dedicated Service Advisors, Service Technicians, and repair centers.
Reach us by emailing [e-mail address removed] to schedule a Service appointment, get status updates, request parts or speak with an expert. Note that this channel only services Roadsters and you should continue to use the Tesla app for all other Tesla cars.
You can also trade-in your current Roadster and apply the value towards the purchase of a Model S, Model X or Model 3- even a reservation for a next generation Roadster. Request a trade-in quote to get started.
In the case of an emergency, please continue to contact Roadside Assistance at [phone number removed].
Many thanks for your continued support for Tesla.
OPEC considers deeper cuts, meeting in disarray before it gets started
OPEC’s meetings appear to be in disarray even before they begin this week, but analysts see a growing chance the fractured group may ultimately agree to deeper production cuts.
Members of the Organization of the Petroleum Exporting Countries meet Thursday in Vienna, and they will be joined by Russia and other non OPEC producers Friday. That larger group, known as OPEC plus, had been expected to extend an existing agreement to cut 1.2 million barrels a day through June. The agreement had been set to expire in March.
Helima Croft, RBC head of global commodities strategy, said it is now her understanding that a larger cut had the support of the OPEC core operating group, as well as its partner Russia.
Croft, speaking from Vienna, said it appears the defacto operating group of OPEC has agreed to larger cuts, but it was not discussed at a meeting on Tuesday of the Joint Technical Committee that monitors the production deal.
Iraq oil minister Thamer Ghadhban Wednesday told CNBC’s Dan Murphy in Vienna that the current cuts are not enough, and the group should cut 400,000 more.
Croft said the Iraqi minister’s comments created a stir and helped send oil prices about 4% higher Wednesday.
“If the plan was for a surprise party, it has been been dashed,” she said. “The problem with the Iraqi oil minister putting this information out there is now it has set market expectations. Now if they come out with just an extended cut, and not deeper, and just honor the rolling agreement to go to March, that’s a bearish outcome. He really did upend everything.”
On Tuesday, J.P. Morgan analysts in London said in a note that their base case was now for 300,000 barrels a day cut, on top of the current 1.2 million barrels per day. They said OPEC was focused on U.S. shale’s growth, and was no longer willing to give it a “free ride.” As OPEC plus reined in production, U.S. production has gone full throttle, and the U.S. is now producing 12.9 million barrels a day, more than Saudi Arabia and Russia.
Ghadhban mentioned U.S. production in his comments to CNBC. “The 1.6 (million bpd) … I think it would be more effective, no doubt about that,” the minister said. “It would improve the situation within the oil supply and demand. And it is not only OPEC now who is the main player — OPEC contributes oil about 30%, and the number one producer is the U.S. So there are new realities in the world.”
Iraq, OPEC’s second-largest producer, happens to be one of the countries that has not been keeping to its quota, along with Nigeria. Russia has also exceeded its limits. Ghadhban’s position as oil minister is also tenuous given Iraq’s prime minister resigned last week and a new government will be formed.
Rebecca Babin, a senior energy trader at CIBC Private Wealth Management described the OPEC plus meeting like a dysfunctional family. with members all driven by their own opinions and objectives.
She said it’s understandable that OPEC is now willing to look at further cuts. “I think it’s understandable given the unrest you have in Iraq. Look what’s happening in Iraq. Hardly anybody’s talking about the fact Iraq has some major protests going on,” Babin said. Some producers are under pressure to meet their budgets.
“They all have a heightened sense of urgency around what’s happening at this meeting. They are even more dysfunctional,” she said.
Babin said the OPEC plus meeting was considered to be a “stay the course” event up until last week when Russia Energy Minister Alexander Novak said he thought the group should hold off until March to make a decision.
Ahead of the meetings, OPEC’s biggest producer, Saudi Arabia, was reportedly both backing further cuts and threatening to raise its own production if other members of OPEC continue to fail to meet their commitments to cut production.
J.P. Morgan analysts said Saudi Arabia, as part of a production cut, may agree to limit its output to 10 million barrels a day, from 10.3 million barrels.
John Kilduff of Again Capital said it’s possible that the group could agree to cuts, and if it doesn’t oil prices will get hit hard. “It will the mother of all disappointments,” he said.
He said Saudi Arabia would be happy to see a bigger cut and higher oil prices, considering that Saudi Aramco’s initial stock offering will be priced Thursday.
“The broader issue is they are unhappy with the lack of compliance,” he said.
Analysts said they were waiting to see what Russia’s position is when Novak arrives in Vienna on Thursday. Russia had opposed deeper cuts, but has been angling to have its condensates removed from the original agreement and focus instead only on its crude output. That in essence would reduce the size of Russia’s production cut if agreed to.
Novak has made it clear Russia’s oil producers are unhappy with the agreement, as it currently stands.
Croft said Russia may get its wish on the condensates. “It may be the price of entry,” she said. Russia could get its wish on condensates in exchange for its support of further cuts.
Babin agreed and said other producers would be looking for similar treatment but they would have no leverage. Russia has said it could meet its production cut objective of 225,000 to 230,000 barrels if it was not required to count condensates, equal to about 6% of its production.
“If the call goes to Putin I think Russia will follow that the core OPEC members want,” Croft said.
Analysts have said Russian President Vladimir Putin values his relationship with Saudi Arabia, and the two have agreed to energy partnerships and other ventures.
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