Daily Market Color

Global Stocks Higher Despite Potential Production Agreement Failing to Boost Oil Prices

US Stocks rallied while the Treasury curve has experienced a small bear steepener off the back of possible good news for oil price stability along with some central bank rumors.  In a meeting which concluded earlier this morning, four of the world’s largest oil producers (Saudi Arabia, Russia, Qatar, and Venezuela) claim to have agreed to freeze oil production at their respective January production levels.  Crude prices initially surged over 5% after the news broke, adding to Friday’s 12% advance, before turning negative on disappointment that the talks didn’t result in an outright cut in production and are subject to the usual set of contingencies and uncertainties in actual production follow-through.  The Saudi oil minister stated that freezing output at current levels is enough to stabilize the price of oil, but market pundits believe the oil-rich country is most concerned with maintaining market share.  If a final broader production agreement can be reached, it would be the first joint OPEC and non-OPEC production deal in 15 years.  Iran remains the largest hurdle to a meaningful deal due to Tehran’s insistence on boosting output to pre-sanctions levels to regain previously lost market share.  To this point, Iran has been absent from the talks.

Chinese stocks experienced their best day in three months after data showed Chinese banks issued a record amount of loans in January.  The positive loan data was released after supportive comments from Zhou Xiaochuan, a PBoC governor, and Chinese Premier Li Keqiang, over the holiday weekend.  Zhou said there is no basis for continued yuan depreciation, which boosted the currency to the largest daily gain against the dollar in more than a decade.  Comments from Chinese Premier Li indicate that policymakers are preparing additional stimulus measures intended to boost growth and promote financial market stability, which was well-received by Chinese stock markets.
 
Philadelphia Fed President Harker (non-voter ’16), Minneapolis Fed President Kashkari (non-voter ’16), and Boston Fed President Rosengren (dove, voter ’16) are all scheduled to speak today.  All three major US stock indexes are up over 1%, while Treasury yields are 2-6 bps higher in the belly and back end of the curve. A heavy domestic economic data calendar this week will be highlighted by PPI/Housing Starts/Ind. Production/Capacity Utilization on Wednesday and CPI data on Friday.

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