After a terrible first several weeks of the year, global capital markets stabilized in the past week. Chinese markets re-opened after the extended Lunar New Year holiday and proved not to be disruptive.  

Chinese equities did not decline to catch-up to the performance of global markets in its absence and instead gained 3% on the week. The offshore yuan appreciated during the holiday, and the onshore yuan strengthened to converge with it. It traded in a narrow range after the markup. 

The price of oil surrendered gains initially fueled by an agreement led by Saudi Arabia and Russia to freeze output, provided others would. However, the gesture was quickly understood to be hollow. The Iranians cannot agree to it. Otherwise, they would have suspended their nuclear ambitions for naught. Moreover, data suggests that both Saudi Arabia and Russia boosted their output in January. Many other oil producers (outside of Iran) have little spare capacity. The price of oil closed slightly lower on the week. 

The April Brent and light crude futures contracts finished on a weak note. The technical indicators are mixed. Our bias is on the downside. The low for the April light crude contract was set near $28.75 in both late-January and early-February.  This area may be retested. However, if the low is double-bottom, the April contract needs to rise above $35.00-$36.50 area.

Meanwhile, concerns about a US recession have slackened. Data continues to accumulate point to above trend growth in Q1 16 after a dismal Q4 15. The Atlanta Fed GDPNow is tracking 2.6% annualized pace. A strong January jobs report has been followed by a robust core retail sales and stronger than expected industrial output and manufacturing. The more than 4% rise in US stocks helped arrest the deterioration of financial conditions.

The US dollar turned in a mixed performance. The yen was the strongest currency gaining about 0.7%. The greenback’s early bounce ran out of steam ahead of JPY115.00. Lower US bond yields and the reversal of oil’s gains seemed to underpin the yen. The dollar closed poorly ahead of the weekend, and the technical tone is weak. The risk is of a move to marginal new lows, with the JPY110.50 area a reasonable target.