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Producers inching towards a meeting and possible production agreement

Published Thursday, February 4th, 2016

US rate tightening cycle hits a snag

As the spotlight turned to an update on the health of the global services sector, China enjoyed a rare day off from the economic naughty step after its latest Caixin/Markit survey of services sector activity edged up to a six-month high. It was a different story elsewhere where a slew of equivalent readings disappointed. The downbeat releases got underway in the eurozone where a final gauge of private-sector activity highlighted a loss of momentum in January with additional angst coming from a sub-index pointing to lingering deflationary pressures. The fallout saw the region’s stock indices uncouple themselves from firmer oil prices with the move lower led by banking shares which tumbled following a recent batch of weak earnings.

Disappointment however soon turned to relief shortly after the opening bell on Wall St despite fresh evidence of a wobbling US economy. Its non-manufacturing ISM for January badly undershot expectations after nosediving to an almost two-year low of 53.5 from 55.8 in the previous month. Instead of fuelling concerns that US manufacturing malaise was spreading to other parts of the economy, investors piled into risk assets as they pared back expectations of further rate hikes. Predictions of a lull in the US monetary policy tightening cycle were also bolstered by dovish comments from a Fed policymaker in which he cautioned on the impact of the strengthening dollar. The response was instant and the dollar index slumped 1.7% to a three-month low as recent projections that this year would see up to four separate Fed rate rises were torn up with many now expecting no increase until next year.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.