US Consumer Stalls, Naimi Freezes

Stocks fell alongside oil after Saudi's oil minister Al Naimi asserted that a freeze in oil production did not mean a cut and that no reduction in output would be happening  any time soon. The yen and Swiss franc were the top performers while the pound lagged. Fed's Fischer. Meanwhile, If there is a big surprise in the next two months it could be the resilience of the US economy but data Tuesday dimmed hopes. 6 Premium trades are currently open, 1 of which was opened last night in GBPUSD and remains in progress.

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Low oil prices put money directly into US consumer pockets but it hasn't translated into economic growth the way the Fed and many others expected. The trend was underscored by a fall in the consumer confidence report to 92.2 compared to 97.1 expected. It was the lowest since June.

US January existing home sales report was slightly stronger than the prior month at 5.47m versus 5.45m while manufacturing continues to struggle with the Richmond Fed at -4 compared to +2 expected.

The consumer confidence report was likely dragged down by weakness in the stock market so it could recover just as quickly as it fell if sentiment turns...if it returns. Overall, it highlights the uncertainty around the US economy. The Fed sees growth around 2.5% with rising inflation. The numbers have shown no inflation and middling growth. After a mild winter, it will be difficult to find excuses if the data doesn't begin to improve.

Commodity prices remain the X-factor. Late in US trading, API reported that another 7.1 million barrels of oil went into storage last week, roughly doubling expectations. A multitude of OPEC headlines also hit throughout the day and it's abundantly clear that no one is prepared to cut production while Iran will continue to ramp up sales.

Given those dynamics, it's extremely difficult to envision that oil prices can remain at these levels. Even if the global economy expands at the high end of expectations this year it still means there is far more oil on the market than needed. Ashraf sees oil returning to $25 and below.

Trading on Tuesday underscored the oil/risk appetite dynamic. In the next phase of oil declines, look for the market to be more selective. Financials, energy-related companies and emerging market commodity exports remain the most vulnerable while consumer-related companies and import-heavy economies could hold up better.

In the middle are developed-market commodity exporters like Australia. Indications have remained solid in the past six months and any supposed trouble in China hasn't hit particularly hard. The RBA has remained constructive and so far they have been right. Skilled vacancy jobs matched the previous rise of 0.4%, while Q4 wage price index slowed to 0.5% from q/q 0.6% q/q and Q4 construction fell by 3.6%, worse than the expected decline of 2.0%.

Finally, Fed vice chair Fischer said “It is still early to judge the ramifications of the increased market volatility of the first seven weeks of 2016.” So that's more wait-&-see from the Fed's #2 ahead of the March meeting.