Daily Agenda: Stocks, Commodities Rise on Saudi Change of Heart

OPEC leader backs oil-production caps; India strikes inside Pakistan; Pepsi earnings up; Spain struggles to form government; big layoffs at Commerzbank.

The unofficial meeting of the Organization of Petroleum Exporting Countries with Russian energy officials in Algiers yesterday concluded with more significant progress towards production caps than markets anticipated. According to attendees, the recently appointed Saudi Minister of Energy, Khalid Al-Falih, spoke in support of actions to support prices and encourage investment. This turnabout by the acknowledged OPEC leader, which has previously defended a strategy of keeping supply levels high to compete with North American producers, drove prices for front-month delivery futures contracts for West Texas Intermediate crude higher by more than 5 percent. The jump helped drive broad equity indices higher in early trading today as energy stocks rose on prospects for higher margins. The question facing investors now, during the long wait before OPEC’s official meeting in November, is how significant any production cut may be and whether rising prices will simply bring mothballed U.S. and Canadian capacity rapidly back online in response.

India attacks targets inside Pakistan. Indian Prime Minister Narendra Modi launched a series of targeted military strikes yesterday at rebel bases operating across the border into Pakistan. The action was a response to attacks by rebels against the Indian military earlier in September that resulted in the deaths of 18 Indian soldiers and led to Modi canceling a summit in Islamabad, Pakistan scheduled for November. The Indian military has executed cross-border operations in the past in the disputed Kashmir region, but the public acknowledgement of the attacks,including a press conference by Ranbir Singh, the director general of military operations, is unusual. Pakistan’s government condemned the Indian strikes.

Pepsi earnings, guidance rise. Third-quarter financial results released by PepsiCo today included earnings that, at $1.40, bested consensus analysts’ estimates. The resilience in North American sales of the company’s soft-drink and snack-food brands offset the effect of a strong dollar on overseas sales to a greater degree than anticipated by Wall Street. Critically, company management raised its full-year earnings guidance from $4.71 per share to $4.78.

Spanish Socialists split over Rajoy. A rift over whether to support acting Spanish Prime Minister Mariano Rajoy’s attempt to form a new, permanent government has caused a major rift in the Socialist Party. Yesterday, 17 of the 25 members of the party’s ruling body resigned in protest over party leader Pedro Sanchez’s intransigence. Sanchez and other hardliners have blocked a compromise that would open the way for a coalition and leave Rajoy in office. Rajoy’s former coalition lost its parliamentary majority in December and he has retained his office on a contingency basis ever since. A third runoff election will occur this December if no compromise between various parties is reached.

Commerzbank to slash headcount. Massive layoffs were announced by Commerzbank today as part of an effort to restructure in the face of challenging market condition. Germany’s second-largest lender will lay off roughly 20 percent of its total workforce, according to the release, as well as suspend dividends as it struggles to become profitable in the face of negative interest rates and sluggish loan demand. Investment banking and trading activities will be curtailed as part of the reorganization in order to reduce risk and volatility. The moves come as investor concerns mount that Germany’s largest financial institution, Deutsche Bank, may require a government bailout.

German unemployment edges up. Despite the news at Commerzbank, German unemployment has hit an historical low at 6.1 percent. In a release earlier today, the German Federal Labor Agency announced that the number of jobless rose by 1,000 in September versus consensus economist forecasts for a decline of 5,000. The increase was the first time the jobless headcount has increased in the European Union’s largest economy in 12 months. Employment is a politically sensitive topic because of the ongoing debate over immigration from conflicts in the Middle East that continues to divide Germany.