The decline in oil and equities are lifting European bonds and Treasuries. The US dollar is firmer against most major and emerging market currencies.  

We never put much stock in last week’s seemingly euphoric speculation of a deal between Russia and OPEC to support oil prices. As the speculation is unwound, anticipation of another large US inventory build, and poor corporate earnings from energy sector are also taking a toll. BP posted a 91% decline in Q4 earnings. Yesterday, S&P cut Shell’s long-term credit rating by one notch to A+ and placed on negative watch.  Last week Chevron, the world’s second largest oil producer after Exxon reported its first quarterly loss since 2002. 

The MSCI Asia-Pacific Index snapped a four-session advancing streak by almost declining one percent. It is only the second decline since January 21. One way that the price action differs from the very start of the year is the apparent decoupling from China. Despite the loss by all the other regional markets, Chinese stocks advanced.  The Shanghai Composite was up 2.25% and the Shenzhen Composite was up 3.4%. 

The PBOC continues to aggressively inject liquidity into the banking system ahead of next week’s extended holiday. Press reports indicate that the six IPOs have drawn orders of CNY7.1 trillion (~$1.1 trillion). Under the new rules, investors are allowed to bid for shares without having to make upfront deposits. The onshore yuan is trading as it has been re-pegged to the dollar. Within very narrow ranges, the dollar has edged higher for the third consecutive session. The offshore yuan has weakened a little more, leading to a modest widening between the two. 

The Reserve Bank of Australia left the cash rate at the record low of 2.0%, as widely expected. Governor Stevens noted the risks that emanate from the recent slide in equities and commodity prices. However, he also seemed upbeat on employment and business conditions. The Aussie initially rallied in response and reached $0.7130 before being dragged lower by weaker commodities and the general risk aversion. The Aussie returned to yesterday’s lows near $0.7040 in the European morning.