Here is what you need to know.
A secret meeting has produced an agreement to freeze oil production. According to The Financial Times, a secret meeting between Saudi Arabia and Russia has led to the two sides — in addition to Qatar and Venezuela — agreeing to freeze oil production at January levels. West Texas Intermediate crude oil was trading above $31 per barrel as word of the meeting surfaced and traders priced in the possibility of a production cut. But trade has given back most of those gains as word of a production freeze surfaced. Currently, WTI is trading up 0.7% at $29.63 per barrel.
China’s trade data is worrisome. China’s trade data was released on Monday, and it continued to show a big rebalancing of its economy. Imports tumbled 14.4% year-over-year in January, missing the expected 1.8% gain by a wide margin. Exports also fell short, down 6.6% YoY against an expected 3.6% increase. In dollar terms, the import side of the ledger looked even more terrifying, down 18.8% compared to the 3.6% drop that was anticipated. While the data is worrisome, there is usually some volatility in the numbers around the Lunar New Year.
Bad loans at Chinese banks are at their highest level in nearly a decade. Non-performing loans at Chinese banks surged 51% YoY to 1.27 trillion, hitting their highest level since June 2006. Data released by the China Banking Regulatory Commission (CBRC) on Monday said China’s bad-loan ratio climbed to 1.67% of assets from 1.25% in 2014, according to Bloomberg. “Three developments are potentially worrisome: half of all loans are linked, directly or indirectly, to China’s overheated real-estate market; unregulated shadow banking accounts for nearly half of new lending; and the debt of many local governments is probably unsustainable,” noted McKinsey Global Institute. The Chinese yuan weakened 0.3% to 6.5133 per dollar.
The Bank of Korea kept policy on hold. South Korea’s central bank held its key interest rate at 1.50%, as expected. The BOK noted the economies of both the US and eurozone appeared to have “weakened somewhat” and that the Chinese economy continues to slow. At home, “…the trend of decline in exports has expanded and the recovery of domestic demand activities such as consumption has also shown signs of weakening somewhat, while the sentiments of economic agents have been sluggish.” The central bank says its policy will work to sustain economic growth and price stability over the medium-term. The South Korean won weakened 0.7% to 1216.53 per dollar.
Mario Draghi says the ECB is ready to act. Speaking in Brussels on Monday, European Central Bank head Mario Draghi said he was ready to ease policy further in March if financial conditions or low energy prices are a threat to keep inflation persistently low, Reuters reports. Draghi told the European Parliament’s Economic and Monetary Affairs Committee, the ECB will first examine the pass-through of low imported inflation and wages to inflation expectations then the state of the financial system, in particular the banks. “If either of these two factors entail downward risks to price stability, we will not hesitate to act,” Draghi said.
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German business confidence slumped. The ZEW Indicator of Economic Sentiment for Germany fell to 1.0 in February after its 10.2 reading in January. This made for the lowest reading since October 2014. “The looming slowdown of the world economy and the uncertain consequences of the falling oil price put a strain on the ZEW Indicator of Economic Sentiment,” said Professor Sascha Steffen, head of the “International Finance and Financial Management” Research Department at ZEW.” The euro is stronger by 0.1% at 1.1160.
UK inflation is its highest in over a year. UK inflation printed 0.3% YoY in January, its hottest in over a year, according to official figures released on Tuesday by the Office for National Statistics. The number marked a slight uptick from the 0.2% YoY reading for December, and was in-line with economists’ expectations. According to the ONS, inflation saw an “upward pull” from things like restaurants, hotels and tuition while being dragged down by transport costs, food and non-alcoholic beverages. The British pound is little changed near 1.4425.
Global stock markets are mixed. China’s Shanghai Composite (+3.3%) led the gains overnight and Germany’s DAX (-0.8%) leads a mixed session lower. S&P 500 futures are higher by 22.00 points at 1880.25.
Earnings reports continue to flow. Yandex highlights the names reporting ahead of the opening bell while Cheesecake Factory, Express Scripts, Fossil and Potbelly are among those releasing their results after markets close.
US economic data is moderate. Empire Manufacturing is due out at 8:30 am. ET before the NAHB Housing Market Index and Net Long-Term TIC Flows cross the wires at 10 a.m. ET and 4 p.m. ET, respectively. The US 10-year yield is up 2 basis points at 1.77%.
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