• Oil prices jump on surprise Saudi-Russian meeting Oil prices rose during the Asian session, on news that the energy ministers of Saudi Arabia and Russia are scheduled to meet in Qatar today to discuss oil production. OPEC delegates have stated in the past that Saudi Arabia would be willing to consider production cuts only if joined by other major non-OPEC producers. The news sparked speculation of a potential agreement among the two nations to control production and added more fuel in the recent recovery of oil prices. OPEC officials have floated the idea of a production ‘freeze’ in recent days, which means that members will keep pumping their current levels of output. This could stabilize the supply side of the energy market as overproduction was the main driver behind the plunge in oil prices. Iran remains the wild card in this outlook, as the country has repeatedly stated its intention to increase oil exports in order to recover its lost market share. Nevertheless, any potential agreement between Saudi Arabia and Russia to regulate oil supply could bring a halt to the free fall of oil prices and could eventually cause a brief recovery, at least in the near term.
• RBNZ under pressure to ease The Kiwi fell by approximately 0.7% against its US counterpart overnight, as New Zealand’s 2-year inflation expectations plunged to their lowest level in more than two decades. The country is already facing very low inflation, with many market participants worried for a slip into deflation. Lower inflation expectations may result in weaker wage negotiations or lower goods prices, which could lower actual inflation. At its last meeting, the RBNZ remained on hold but signaled that further easing may be required to ensure accelerating inflation. Given the plunge in inflation expectations, we believe that the RBNZ may now be forced to ease policy further at its March meeting. This could bring NZD under renewed selling pressure.
• Draghi: ECB won’t hesitate to boost stimulus During his quarterly appearance before the European parliament, the ECB President stated yesterday that the Bank won’t hesitate to boost its stimulus program in March if it judges that the recent financial turbulence or the fall in oil prices may weigh further on stubbornly low inflation. The ECB chief acknowledged the risks around Eurozone’s outlook but also said the Bank’s stimulus had worked a lot, with the asset purchase program flexible enough to adapt. The euro came under renewed selling pressure during the speech and given the significant increase in expectations for further easing, we could see the currency extending some of its recent losses.
• Today’s highlights: During the European day, the main event will be the UK CPI for January. The forecast is for a slight acceleration in the headline figure, but a minor slowdown in the core reading, which reflects energy-related base effects. The decline in gasoline prices in January was less than it was last year, which could provide a temporary boost to inflation due to the CPI calculation. In the minutes of the latest BoE meeting, officials judged that CPI inflation is likely to remain below 1% until the end of the year, as a result of the recent fall in commodity prices. Therefore, we believe that a minor rise in the inflation rate due to base effects may be not be enough to boost inflation expectations, as it may be viewed as temporary. As a result, the market reaction on GBP at the release may be minimal.
• From Germany, the ZEW survey for February is forecast to show a decline in both the current situation and the expectations indices. It appears that the negative sentiment that has recently overwhelmed the global economy may have weighed on the optimism of German investors as well. If this uncertainty begins to affect the investment plans of businesses, it may dampen overall economic growth. This could put the common currency under renewed selling pressure.
• From Norway, we get the GDP data for Q4. Although there is no forecast available, we expect economic growth to have slowed in Norway. The fall in oil priced during the quarter is possible to have hurt export revenues and well as total investments in the energy sector, dragging down the country’s growth rate. A disappointing print could cause NOK to give back some of the gains it posted against its US counterpart since the beginning of the year.
• In the US, the Empire State manufacturing index for February is expected rise but to stay below the zero mark. This still points to contraction in New York’s manufacturing activity and increases the possibilities for another print below 50 in the ISM manufacturing PMI for the same month due to be released on the 1st of March. The NAHB housing market index for the same month is expected to have remained unchanged.
• Canada’s manufacturing sales are expected to have slowed in December, but this is usually not a major market mover.
• We have two speakers scheduled for Tuesday: Philadelphia Fed President Patrick Harker and Minneapolis Fed President Neel Kashkari.