Daily Outlook

Recent optimism towards equity markets continued in the US overnight. The S&P500 and DJIA closed up 1.65% and 1.39% respectively following US dollar strengthening against most currency pairs. European stocks struggled to follow suit as oil gains receded. The DAX closed 0.8% in the red as ZEW’s survey on German investor sentiment recorded a 16-month low in February. Sentiment weakness continues to be driven by the recent oil collapse and China’s slowdown.

Oil markets responded poorly to the deal between Saudi Arabia and Russia, freezing output at their January levels. Analysts believe it was unlikely that either country would increase production further, as further supply concerns stem from Iran and Iraq; two players left out of cooperation discussions. Although Saudi Arabia, Russia, Qatar and Venezuela make up around 25% of global supply, this agreement will continue to lack substantial weighting until other major producers join in. As Iran refuses to consider output cuts until reaching pre-sanction levels, another 1m bpd is yet to hit the market. Even with Russian commitment and an OPEC output cap at its January level, the deal would simply maintain the excessive supply that currently exists in the market. Price recovery will more than likely require stronger global demand and non-OPEC supply reductions due to sharp price declines.

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