• Oil deal depends on Iran’s cooperation The oil ministers of Iraq, Iran and Venezuela will meet in Tehran today to discuss a potential oil output freeze. The meeting follows an agreement between four oil producers yesterday, including Saudi Arabia and Russia, to maintain production at current levels but with the condition that other major producers will follow suit. Iraq, OPEC’s second largest producer, appears willing to cooperate in an agreement to tackle oversupply. However, investors see a potential cooperation by Iran to be unlikely, given the country’s determination to raise output and recover its lost market share. There is a distinct possibility though that Iran is offered special terms as part of this deal. These special terms could range from allowing the nation to boost exports to pre-sanction levels and then freeze output, to permitting Iran to gradually increase production when oil prices begin to rise again. A potential agreement could cause oil prices to stabilize, at least temporarily, while no agreement could add more fuel in the oil downtrend as the prospect of supply-side stabilization will become less likely.
• Fed’s Rosengren reaffirms a slower rate path Boston Fed President Eric Rosengren said overnight that if the global weakness were to be transmitted to the US, there would be little need to raise rates until the economy was growing close to its potential rate. He added that if inflation is slower to return to the target, policy normalization should be more gradual. By expressing these concerns, Rosengren joined other voting FOMC members that have recently voiced their reluctance to raise rates further before any impact of the global turmoil on the US economy becomes clear. Market expectations for a rate hike in March are already very close to zero. If we were to see more voting members adopting a similar outlook, this could bring down expectations for more hikes during this year.
• As for today’s events, during the European day, we get the UK employment report for December. The unemployment rate is expected to have declined to 5.0% from 5.1%, which would mark the 6th consecutive fall and point to further tightening in the UK labor market. Nevertheless, investors’ eyes will most probably be on average weekly earnings which are forecast to have slowed to 1.9% yoy from 2.0% yoy. BoE’s Ian McCafferty said on Monday that he withdrew his call for a hike at the latest meeting because inflationary pressures in the UK have receded. He also added that the recent fallback in wage growth suggests that there is no longer an urgent need for a hike. Given these comments by a member who has been the lone voice for a rate increase from August until January, further slowdown in wages could push further back expectations for a rate increase and could cause the pound to extend yesterday’s declines. In any case, any reaction from the sterling on the data could be short lived as the main focus remains on Friday’s Brexit talks.
• In the US, the Fed releases the minutes of its January 26-27 meeting. At this meeting, the FOMC remained on hold as was widely expected and in the statement accompanying the decision the Committee noted that it is monitoring international developments and how those could impact the US economy. Since the meeting, the uncertainty surrounding financial markets has increased and concerned comments from several Fed members, including Chair Yellen, have eliminated any market expectations for a March hike. On the other hand, Cleveland Fed President Loretta Mester adopted a different stance, saying that the economy remains sound and will overcome market turbulence, allowing the Fed to continue tightening. While the minutes will likely not give us any clear hints on when the Fed is thinking to hike rates again, they may reveal more insights on the different views within the FOMC.
• As for the US indicators, industrial production for January is forecast to have risen after falling for three consecutive months. Bearing in mind that the ISM manufacturing PMI for the same month remained below 50, we see a high likelihood that the IP figure may not rise by as much as expected. US housing starts are forecast to have increased somewhat in January, while the more forward-looking building permits for the same month are expected to have declined marginally. This data show that the US housing sector remains healthy and could support the dollar at the release. The US PPI data for January are coming out as well.