Market review for for Mar 20, 2017

In New Zealand this morning, A closely watched measure of consumer sentiment in New Zealand declined in the first quarter, Westpac reported Monday.

The Westpac consumer confidence index slipped 1.2 points to 111.9 in the March quarter, after climbing 5.1 points in the final quarter of 2016. The indicator has been on a general downtrend since early 2014.

A reading above 100 indicates optimists outweigh pessimists.

Westpac’s quarterly survey tracks consumer optimism in New Zealand’s economy, including views on personal finances and economic expectations. These factors are seen impacting consumer spending, which is a key driver of the domestic economy.

New Zealand’s robust economy softened in the fourth quarter, as seasonal factors led to a slower than expected rise in total output. The overall economy expanded 0.4% on the quarter and 2.7% annually, missing forecasts.

Household consumption contributed positively to growth, helping to offset declining exports.

 Disappointing growth poured cold water on expectations the Reserve Bank of New Zealand (RBNZ) would consider raising interest rates this year. Investors are still pricing one quarter-point rate hike over the next 12 months, as New Zealand is set to become one of the fastest growing advanced economies.

The Reserve Bank will hold its next policy meeting on Friday.

Wellington reported a current account deficit of NZD $2.34 billion in the fourth quarter, the smallest in two years, as tourist dollars poured into the country. Tourism has emerged as one of New Zealand’s most vibrant sectors.

In terms of upcoming data releases, the federal statistics agency will report on February visitor arrivals on Tuesday. Trade data for the month of February will also be presented on Friday.

Moving to the Asian Markets, Asian stocks were mixed on Monday in thin trade, following Wall Street's declines and the G20's decision to drop a pledge to avoid trade protectionism, while the Federal Reserve's less hawkish-than-expected comments continued to weigh on the dollar.

European stocks are set for a subdued start, with financial spread better IG Markets expecting Britain's FTSE 100 .FTSE to open little changed and Germany's DAX .GDAXI to open 0.3 percent lower.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.3 percent.

Hong Kong's Hang Seng .HSI climbed 0.7 percent. Chinese shares were mixed with the CSI 300 .CSI300 down 0.1 percent while the Shanghai Composite .SSEC added 0.1 percent.

Australian shares closed down 0.36 percent. South Korea .KS11 ended the day 0.35 percent lower. Japan .N225 is closed for a holiday.

The MSCI emerging markets index .MIEF00000PUS added 0.4 percent to hit its highest level in more than two years on Monday.

Investor sentiment towards emerging markets, while cooling, remains positive. Emerging market equity funds had their sixth straight week of inflows in the week ending March 15, but the pace slowed. They had net inflows of $215 million, compared with nearly $1 billion the previous week,

Oil prices fell on Monday, with already-bloated markets pressured by rising U.S. drilling activity and steady supplies from OPEC countries despite touted production cuts.

Prices for benchmark Brent crude futures were 35 cents, or 0.68 percent, below their last settlement at 0646 GMT, at $51.41 per barrel.

U.S. West Texas Intermediate (WTI) crude futures were down 46 cents, or 0.94 percent, at $48.32 a barrel.

Traders said that prices came under pressure from rising U.S. drilling and ongoing high supplies by the Organization of the Petroleum Exporting Countries (OPEC) despite its pledge to cut output by almost 1.8 million barrels per day (bpd) together with some other producers like Russia.

According to the statement made by Saudi Arabia’s energy minister Khalid Al-Falih, member states of the Organization of Petroleum Exporting Countries (OPEC) are ready to extend the deal to curb excessive crude oil production into the second half of the year if the need arises.

OPEC members are certain that the deal must be prolonged in order to achieve lasting results, Al-Falih says. Almost all members have been reported to be ready to extend the cuts.

When it comes to market participants that are not a part of the organization, however, OPEC in general and Al-Falih personally would wish to confirm the support of major players, namely Russia.

Just recently, Saudi Arabia expressed its position that the country and its fellow OPEC members will not bear the weight of the fragile oil market while the United States is free to flood the market with growing volumes of shale oil. However, when forced to choose between two evils, Saudi Arabia must succumb to the fact that it’s better to produce less for more than produce more without having the demand to meet the supply, which would cause a slump in oil prices.

According to the latest monthly report from OPEC, 10 member states have curbed their oil output by 1.393 million barrels per day in total in February, 140,000 bpd above the agreed cuts of 1.254 million bpd. Angola and Saudi Arabia were the overachievers of the group, exceeding their required cuts by 41 and 54 percent respectively. Other members are yet to fully comply with the deal’s requirements. Compliance varies from 98 percent from Kuwait to 70 percent from Iraq. Libya and Nigeria were exempted from the need to reduce crude oil production following prolonged periods of civil strife in these countries, which dealt a significant blow to their economies. Iran was also allowed to expand output, albeit to a lesser extent than Libya and Nigeria.

In the meantime, the International Energy Agency, the global oil market think-tank, released a report, which revealed that OPEC’s figures could be exaggerated. According to the IEA, OPEC has not only not exceed the production cut goal, but is yet to reach it. The report indicates that the cartel’s compliance for February was at 91 percent.

After holding above $50 per barrel for three months, WTI came under heavy selling pressure last week, extending losses this week to a low of just above $47 per barrel. Brent oil managed to hold above $50, but came dangerously close. Crude oil prices remain wary of further expansion in US production, as shale oil companies are moving from cost cutting to growth. The weaker US dollar provided some relief following the less hawkish than expected Fed projection, allowing oil prices to rise from their weekly lows. At noon Friday, WTI was at $48.70 per barrel, while Brent was priced at $51.65.

Finally the G20 Finance Ministers meeting, the annual meeting of G20 finance ministers ended Saturday in Germany without a concrete agreement on free trade after the U.S. blocked any language that encouraged past commitments on the open flow of goods and services. U.S. Treasury Secretary Steven Mnuchin also pressured his global counterparts to stabilize their exchange rates and put an end to competitive currency devaluation.

Finance ministers reportedly attempted to draft new language that would satisfy the U.S. on the question of bilateral trade. After failing to do so, the official communique made a very minor reference to strengthening “the contribution of trade” to the world economy.

By failing to explicitly reject protectionism, the G20 summit may have set the stage for growing divergence between the United States and other major economies on globalization.

President Trump has vowed to strengthen Washington’s trade position by scrapping previous agreements that treated the U.S. “unfairly.” The president has singled out China and Germany for currency manipulation and signed executive decrees challenging previous trade commitments. This included executive orders withdrawing the U.S. from the Trans-Pacific Partnership (TPP) and ordering a review of the North American Free Trade Agreement (NAFTA).

In a surprise to many, finance ministers also dropped any reference to climate change funding in their official statement, reflecting President Trump’s commitment to deregulate the fossil fuels industry.

Instead of referencing climate change, finance ministers said: “We reaffirm our commitment to rationalize and phase out, over the medium term, inefficient fossil fuel subsidies that encourage wasteful consumption, recognizing the need to support the poor.”

G20 countries represent more than 80% of global GDP. Their stance on issues such as free trade and climate change have major implications on the global economy.

View our full economic calendar for a daily roundup of major economic events.

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