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OPEC Production Deal Disappoints the Market

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Oil drops below $49 a barrel, China backs away from allowing markets to control the yuan, and the pound wakes up to U.K. election risk. Here are some of the things people in markets are talking about today.

Oil slump

The deal to extend oil-production cuts through the end of March 2018 has disappointed investors who were looking for more out of this week's meeting in Vienna. A barrel of West Texas Intermediate for July delivery was trading at $49.22 by 5:20 a.m. Eastern Time, after falling as low as $48.21 earlier. Global energy shares were also hit. Goldman Sachs Group Inc. said that the market response to the OPEC output-cut deal highlights the challenges the organization is now facing, 

Fixing the fixing

China is considering changes to the way it calculates the yuan’s daily reference rate, adding a "counter cyclical factor" to the fixing, in a move that would be designed to reduce exchange-rate volatility. The measures are being seen to suggest that policy makers are going cold on the idea of an eventual float of the currency, with officials more interested in avoiding turmoil in domestic markets than embracing free-market principles. 

Pound slides

The British pound dropped against all of its 16 major peers this morning, trading at $1.2869 by 5:40 a.m. as polls show the ruling Conservative Party's lead over Labour in the polls tightened to five percentage points. Analysts view the size of the majority the ruling party is expected to secure in the June 8 election as critical for the currency's short-term prospects. If Prime Minister Theresa May fails to increase on her current 17-seat majority significantly, analysts foresee further pressure on the pound

Markets fall

Overnight, the MSCI Asia Pacific Index declined 0.1 percent, while Japan's Topix index dropped 0.6 percent, with oil companies leading the losses. It is a similar story in Europe where the Stoxx 600 Index declined 0.4 percent by 5:45 a.m., as oil producers dragged the wider market lower. S&P 500 futures were also losing ground

G-7 meeting 

President Donald Trump's lengthy first trip abroad culminates with the G-7 summit in Sicily, Italy. After hectoring his NATO allies yesterday to pay their "fair share" on defense, he may find that reaching deals with a group of rich democracies is harder work than the agreements struck in Saudi Arabia earlier in the trip. Back home in Washington, investigators are focusing on series of meetings held by Jared Kushner, Trump's adviser and son-in-law, with Russian contacts in December. 

What we've been reading

This is what's caught our eye over the last 24 hours.

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