ven while crude oil prices were rallying strongly over the past few days it was always going to be a big ask to expect the prospect of an agreement that would keep the oil market happy, and the rebound going into a third day.
While it was welcome and encouraging that many of the major players in the cartel had put aside their differences to talk, and with Russia also present, it did at least show some indication, that various differences aside, there did appear to be a willingness to try and put a floor under prices.
While the commitment to freeze production at current levels underwhelmed, in the absence of any prospect of an agreement from Iran anything else was always going to be treated with a healthy dose of scepticism.
Despite yesterday’s slide in oil prices US markets did manage to finish the first day back after their long weekend break with a positive session, but as they were playing catch-up with Europe on Monday, not too much should be read into that given that Europe finished slightly lower yesterday.
While this positive US session does look like it could well translate into a fairly positive start for European markets this morning, Asia markets have stumbled somewhat overnight, with the Japanese yen pushing higher again, while European investors look towards the latest UK unemployment and wages data, and the latest Fed minutes.
The pound took a bit of a tumble yesterday despite January CPI hitting its highest level in almost a year to 0 3%, helped largely by an easing in fuel price deflation. Core prices slipped slightly to 1.2% but the direction of travel does seem fairly clear in that prices are slowly edging higher again.
This turnaround in prices makes the recent decision by Ian McCafferty to drop his call for a rate rise all the more surprising and a little puzzling given his stubbornness when CPI was at -0.1%, a few months ago. Amongst the reasons for changing his mind he cited receding inflationary pressures, yet headline and core inflation have been rising since October, which suggests the opposite is happening.
It is true that wage growth has been slowing and that could have played a part in his decision to change his mind and we will get further evidence of how that is doing later this morning, along with the latest December ILO unemployment data, which is expected to show a drop to 5%, its lowest level since October 2005, and down from 5.1% in November.
It isn’t expected to be such good news on the average earnings front with a further slowdown from 1.9% to 1.8%. This is particularly worrying given that it was up at 3% in the middle of the summer, so while wages are still rising the trend has been steadily lower.
The US economy continues to be the cause for most concern despite being one of the strongest, largely down to concerns that the Federal Reserve might be minded to become a little trigger happy on rate rises. Recent economic data does appear to suggest that a rate rise in the short term seems less likely now, but one never knows despite a number of dovish comments from Fed policymakers.
Yesterday’s February Empire manufacturing disappointed once again, posting its seventh monthly decline in a row, and while today’s January industrial production number is expected to show a rise of 0.4%, that would be the first monthly rise since July’s number.
We round up the day with the latest FOMC minutes but these are likely to be stale now given recent comments from senior Fed officials in the last couple of weeks. Since that Fed meeting markets have been on a roller-coaster ride having had to cope with a Bank of Japan rate cut into negative territory and we’ve also heard from senior Fed officials William Dudley, Stanley Fischer as well as Janet Yellen herself.
All three of them in their own way have indicated that “financial conditions have become less supportive of growth”, and whatever comes out of this evening’s Fed minutes markets should be mindful of that.
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