Today's meeting of oil ministers from several key producing nations is helping boost the price of oil and oil shares. The price of crude oil jumped 6% yesterday to bring its rise to 43% since the multiyear lows of the very end of last year. Global bond markets have not really been undermined by the prospects of higher inflation sparked by the higher oil prices, or the bounce in commodity prices in general, for that matter. Counterintuitively, there is no statistically significant correlation, at the first degree of differences, between oil prices and U.S. Treasuries, for example.
The April crude oil contract can extend its recent gains toward $15.40 a barrel, from $14.69 at yesterday's settlement, but it may prove difficult to sustain such strength. Over the years, agreements to cut production have rarely been adhered to, breeding a healthy skepticism among market participants. Press reports suggest that OPEC's two top producers, Saudi Arabia and Iran, may have resolved the dispute over the latter's previous production-cut agreement, and are now prepared to accept fresh cuts. Other countries that will be represented at today's meeting, however, like Venezuela and Mexico (the latter is not in OPEC), are reluctant to consider fresh cuts, in part because of the lack of adherence to past agreements.
Keep in mind that OPEC countries account for a decreasing share of the world's oil output.
North Sea production and output from the republics of the former Soviet Union make it more difficult for OPEC to control oil prices. In addition, many OPEC countries are facing severe budget problems and slowing growth, not to mention numerous modernization issues, giving many little appetite for production cuts.
The dollar's corrective phase looks to have been completed, but it may still take the dollar bulls some time to send the buck to new highs for the move against the yen and major European currencies. Comments by Japanese officials suggest that they do not want to see the dollar below the 120-yen level.
almost single-handedly stopped the dollar's erosion against the yen. The greenback had slid below the 119.50-yen level earlier today from 123.75, last week's high point. Sakakibara intimated that what he called excessive yen strength was not desirable. The EPA's Sakaiya reinforced the signal by suggesting that the 120-yen level was beneficial for the Japanese economy. The dollar has backed off from the best levels of the day, but a move above 121.40-yen area today would signal a retest on last week's highs.
In a U.K. paper today, George Soros argues that the euro may be fundamentally weak do to a flaw in EMU itself.
Specifically, Soros cites the contradiction between a common currency and individual fiscal policies. While the argument is not new, it comes from someone whom the market suspects is informed and puts his money where his mouth is -- even if there is a debate about the order in which that takes place.
Comments from the
Jochimsen illustrate the timeliness of Soros' argument. Jochimsen warned that the failure of the eurozone countries to comply with the stability pact on fiscal restraint may force the ECB to raise rates. This is most likely not meant as a threat, but as an explanation of the conflicting forces at work within the eurozone. Politicians are still the whipping boys for the weak euro, but central bankers do not help their case when they play down the significance of the euro's 2 1/2-month slide. Today it was the Belgian central banker who argued that although the euro should not continue to slide, it is only 2.5% below last year's average. The dollar faces initial resistance near the 1.80 level against the mark and 1.47 against the Swiss franc. This corresponds roughly to support for the euro near $1.0850. A convincing move through these areas would likely confirm that the dollar's bull move is continuing.
Expiration of futures and options tomorrow for Japanese stocks and options may have been responsible for the late selloff in the Nikkei, which nearly completely erased the 300-point advance. European stocks are faring better, but also have pulled back from their best levels of the session. Mergers in the French and Italian banking sectors continue to underpin financial issues. Oil stocks are also leading the way higher today. The performance of energy related issues helped lift the U.K.'s
to new record highs. Breadth is constructive, but the weakness of the major European economies limits enthusiasm.
Note that Italy has become the first eurozone participant to revise down this year's growth prospects.
In an exclusive interview with
Market News International
, Italian finance officials revised its growth forecast to 1.5-1.8% from 2.5% previously. This means its budget deficit will be closer to 2.3-2.5% rather than the 2% it originally projected. It would not be surprising if 1) this turns out to be only the first downward revision to Italy's growth and 2) that other eurozone countries join Italy in lowering 1999 growth forecasts. However, such revisions will likely wait until toward the end of the second quarter.
The consensus calls for around a 0.8% rise in February U.S. retail sales and a 0.7% increase excluding autos.
This compares to a 0.2% rise in both measures in January. The risk is that the January series gets revised higher. In any event, the strong momentum in consumer spending seen in the fourth quarter has carried over into this year, helped by tax refunds running about 20% above year-ago levels. In addition, the early Easter suggests retail sales will also be strong this month, even if it pulls sales from next month.
The stability of the U.S. bonds in recent days could be challenged by today's report. Bears will find plenty of reasons to sell, from strong U.S. economic data and rising commodity prices to the flood of corporate and agency bonds coming to market. However, they need to break support near 120-16 basis the June bond to open the door for another full-point decline. With subdued inflation reports on the horizon, it may be difficult to sustain a sharp down move today.
Marc Chandler is an independent global markets strategist who writes daily for TheStreet.com. At the time of publication, he held no positions in the currencies or instruments discussed in this column, though positions may change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at