Oil and stocks traded lower

February 24, 2016

FX News Today

Oil and stocks traded lower after the Saudi Oil Minister seemed to indicate that a producer freeze was not universally accepted, while extending an olive branch to shale producers and caution on the outlook for oil prices, which would ultimately depend on market forces. That followed the Iranian Oil Minister saying the freeze was “ridiculous and laughable.” On net, WTI crude is back near $31 bbl, NASDAQ  close 1.62% lower, while the S&P 500  finished yesterday’s trading down by 1.25%.

Japanese services PPI fell 0.6% in January after a 0.1% December gain. The annual pace slowed to 0.2% y/y from 0.4% y/y previously, and has eased from the 0.7% y/y pace registered in August. This is not good news for the BoJ which has pulled out all stops via a shift to negative rates to try to combat deflation and a slowing in growth.

KC Fed’s George said March should be a “live” meeting, in a Bloomberg Radio interview, holding true to her hawkish feathers. Indeed, she flatly stated it’s her objective to remove some policy accommodation. Note that she is a voter this year too. She expects about 2% growth this year and doesn’t believe that recent data suggest a shift in the outlook since December. The FOMC has to look at the medium term in making policy decisions, adding it’s too soon to say if the market volatility to start the year will alter her views. She believes inflation is stable and doesn’t believe in deflation. She does see some headwinds from the oil market and the dollar. At the same time Fed VC Fischer said we simply don’t know what we’ll do in March, in the text of his speech on “Recent Monetary Policy Developments.” He noted the further improvement in the labor market and the pickup in some spending indicators. But he said it’s too early to judge the ramifications of market turmoil, adding that the Committee is closely monitoring global economic and market conditions. However, if the recent financial market developments lead to a sustained tightening of financial conditions, that could impact U.S. growth and inflation. He also said that cheaper oil prices suggest inflation could remain low for a longer period of time than anticipated.

US Consumer Confidence fell to 92.2 from 97.8 (was 98.1, median 97.5) in January. Last January’s 103.8 headline set a new high back to Oct ’07, the recent low was 40.9 in October ’11.Expectations fell to 78.9 from 85.3 (was 85.9) in January. Current conditions rose to 112.1 from 116.1 (revised from 116.4) from January. The job strength differential fell to -2.1 from -0.6 in January. Inflation data’s one year ahead number fell to 4.7% from 4.8% in January.

Main Macro Events Today

US New Home Sales: January new home sales are out Wednesday and should reveal a 4.4% headline decline to a 520k (median 520k) pace for the month from 544k in December and 491k in November. Already released housing data for January had starts slowing to 1.099 mln from 1.143 mln in December and existing home sales increased to 5.470 mln from 5.450 mln in December.

The US Services ISM: is expected to rise to 54.0 from 53.5 in January. The July spike to 59.6 set a new post-recession high. Forecast risk: downward, given weakness in earlier month releases. Market risk: downward, as a run of weak data could impact rate hike timelines. The ISM-adjusted figure for the ISM-NMI tends to track that of the Philly Fed.

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