Oil truce sends WTI lower while stocks continue to recover
Oil has been in focus again today on big news that Saudi Arabia, Russia, Qatar and Venezuela have agreed to freeze production at January levels. The deal is contingent on other producers joining in but later reports suggest Iraq and Kuwait also plan to freeze production, while Iran probably won’t until it gets production and sales back up to pre-sanctions levels (who could blame them really?). Meanwhile low exploration activity in the US suggests production there may decline naturally in time anyway.
Oil markets fell back on the news with traders disappointed that the countries didn’t agree on actual production cuts, have only agreed to freeze at high levels, and could yet cheat or renege on the deal. In my opinion though, a comprehensive deal was way too much to ask of countries at each other’s throats fighting over market share and involved on opposite sides in proxy wars. This truce does, however, represent a positive first step that may not be as positive as some had hoped but at least should help to tone down the unfettered “how low could oil go” speculation, help the price to stabilize and perhaps set the stage for future agreements.
Even though the weakness, WTI still held well above its recent low near $26.60 and the $25.00 levels while Brent fell back to $32.00 not $30.00, indicating bears continue to lose strength. Don’t forget after Friday’s big 10% gains, WTI and Brent were due for a trading correction anyway and today’s slide doesn’t appear to be any more than that.
US markets continued to rebound Tuesday on their return to trading. There wasn’t a lot of stock related news although the takeover of security company ADT sent its shares up nearly 50%. A soft Empire Manufacturing report was likely discounted due to last month’s big east coast storm. Easing China fears also appear to be helping to boost sentiment in other markets. Canada stocks rallied through the day overcoming the oil headwind, suggesting that stocks are starting to go their own way again.
Fed comments were mixed today with Philadelphia Fed President Harker suggested waiting for more data before hiking rates again while Minneapolis Fed President Kashkari indicated he doesn’t expect negative interest rates in the US echoing comments from New York Fed President Dudley on the matter last Friday. Heading into tomorrow’s FOMC minutes, Fed members still appear to be interested in keeping their options open for March while threatening negative rates to keep other central banks from getting carried away with devaluations.
In currency trading, NZD has been under significant pressure after milk prices declined again at the latest auction. GBP has also been sliding between today’s inflation report and tomorrow’s employment report. Defensive currencies have been mixed with gold in correction mode but JPY continuing to climb. Because of this, Japanese markets may be attract particular focus again today.
There have been no major announcements after the US close so far today.
Significant announcements released overnight include:
NZ Fonterra Dairy prices $2,235 vs previous $2,276, down 2.8% vs 7.4% decline at last auction
US Empire Manufacturing (16.6) vs street (10.5) vs previous (19.4)
US NAHB housing market index 58 vs street 60 unchanged
Canada manufacturing sales 1.2% vs 0.5% vs street 1.0%
Canada existing home sales 0.5% over month vs previous (0.6%)
UK consumer prices 0.3% as expected
UK core CPI 1.2% vs street 1.3%
UK retail prices 1.3% vs street 1.4%
UK producer input prices (7.6%) vs street (8.6%)
UK producer output prices (1.0%) vs street (0.9%)
UK ONS house prices 6.7% vs previous 7.7%
Germany ZEW current 52.3 vs street 55.0
Germany ZEW expectations 1.0 vs previous 10.2
Eurozone ZEW expectations 13.6 vs previous 22.7
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
10:30 am AEDT Australia leading index previous (0.3%)
10:50 am AEDT Japan machine orders street (2.8%)
5:00 pm AEDT Japan machine tool orders previous (17.2%)
11:30 am AEDT Singapore electronic exports street (1.7%)
11:30 am AEDT Singapore non-oil exports street 2.9%
7:00 pm EST FOMC Rosengren speaking
9:30 am GMT UK jobless claims change street (3K)
9:30 am GMT UK 3M jobs change street 225K vs previous 267K
9:30 am GMT UK unemployment rate street 5.0%
9:30 am GMT UK average weekly earnings street 1.9%
10:00 am GMT Greece consumer prices street (0.2%)
8:30 am EST US housing starts street 1,173K
8:30 am EST US building permits street 1,200K
8:30 am EST US producer prices street (0.6%)
8:30 am EST US core PPI street 0.4%
9:15 am EST US industrial production street 0.4%
9:15 am EST US manufacturing production street 0.2%
2:00 pm EST US FOMC minutes
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