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OPEC's next big deal, more data and Washington are all on markets' minds

  • Focus Thursday will be on the next steps for the House health care bill
  • OPEC is expected to extend its production deal by nine months
  • Sears Holding, Best Buy report ahead of the bell, Costco reports after the close
  • Traders will also be weighing the reaction to Fed minutes, as Fed officials speak Thursday

OPEC is expected to extend its production deal with Russia and other producers Thursday, a widely anticipated move that should support oil prices but not send them much higher, barring any surprises.

Besides the OPEC news Thursday, traders are watching U.S. economic data, Fed speakers and corporate earnings, dominated by retailers like Sears Holdings and Costco.

Traders will also be watching for next steps from Washington after the Congressional Budget Office released its scoring of the House GOP's Obamacare replacement bill.

Oil drill

OPEC, at its meeting in Vienna, is expected to extend the agreement to trim production by 1.8 million barrels a day for another nine months, after an initial six-month deal. The extended timing should help the market rebalance, but for Saudi Arabia, in particular, it may help keep prices higher ahead of the IPO of its state-owned Saudi Aramco next year. Higher oil prices would be positive for all oil producers dealing with strained budgets.

Oil has been moving higher ahead of the deal. West Texas Intermediate closed at $51.36 per barrel Wednesday after dipping into the $40s recently. There had been speculation that OPEC and others could increase the amount of oil cut from production, but analysts had doubts producers would agree.

"It looks like they're not going to increase it. The initial reaction in the market we think will be supportive. Until you see inventories drop down to reasonable levels, the market is going to have trouble, especially where you have to consider other areas of production coming on line," said Gene McGillian of Tradition Energy.

McGillian noted U.S. production continues to increase, and is at a 2-1/2-year high, while Libya and Nigeria could also increase production.

Economy

Thursday's data could have some bearing on the outlook for second quarter GDP, which some economists revised lower Wednesday because of soft housing data.

Advanced leading indicators is reported at 8:30 a.m. ET, as are weekly jobless claims. The advanced indicators includes early looks at international trade and inventories which are important for the calculation of GDP growth.

"I think it'll confirm that we're still at 3.5 percent [Q2 GDP], 3.5 puts a little above 2 percent for the first half," said Diane Swonk , CEO of DS Economics.

Swonk expects 3.6 percent growth for the second quarter, after a weak first quarter, expected to be revised slightly higher to 0.9 percent when an update is released Friday. On Wednesday, Goldman Sachs economists pared back second quarter growth to 3 percent from 3.1 percent.

Goldman economists noted the 2.3 percent sales decline in April home sales from March, to 5.57 million units, was still near the March cycle-high. The data followed an 11.4 percent drop in April new home sales on Tuesday. "The recent softening in existing home sales, new home sales, and starts likely reflects the lagged impact of higher mortgage rates," the economists said.

After Wednesday's Fed minutes signaled the Fed is ready to move on rate hikes as well as start unwinding its balance sheet this year, Fed speakers will also be important to markets.

Stocks rose, closing near highs of the day, and Treasury yields slipped after the Fed release.

Economists say the Fed looks on track to hike at its next meeting in June, but traders say there were still doubts about the strength of the economic data reflected in the Fed's minutes, when they were released Wednesday afternoon.

New York Fed Executive Vice President Simon Potter appears on a 6:30 a.m. ET panel discussion at FX Week/Global Financial Markets Association in London. Fed Gov. Lael Brainard speaks at 10 a.m. on global economic issues in Washington. At 10 p.m., St. Louis Fed President James Bullard speaks in Tokyo on the economy and monetary policy.

Washington

President Donald Trump continues his overseas trip and meets with NATO heads of state Thursday.

Meanwhile, the budget process continues, after the Trump administration released its first budget this week. Treasury Secretary Steven Mnuchin testifies before the Senate Finance Committee at 10 a.m. and Mick Mulvaney, director of the Office of Management and Budget, testifies before the Senate Budget Committee at 9:45 a.m. ET.

Expect plenty of talk about the repeal of Obamacare, after the Congressional Budget Office deemed the House health care bill to have enough deficit savings to qualify it for Senate consideration. The Senate is expected to work on its own bill, but the score was seen as a positive in that it does not require the House to begin the process over and vote on yet another bill.

Markets are watching the progress of health care closely since the White House has made it a priority ahead of tax reform.

Earnings

Retailers, like Sears Holdings, Abercrombie and Fitch, Dollar Tree, Signet Jewelers, Burlington Stores, and Best Buy, are among companies reporting earnings Thursday. Canadian banks Toronto-Dominion, Royal Bank of Canada and Canadian Imperial are also reporting ahead of the opening bell.

Costco, Splunk, Ulta Beauty and Gamestop report after the closing bell.