Oil summit: Waste of time, but the weather was nice.
April 18, 2016
The outcome of Sundays summit of 16 oil ministers in Qatar was possibly the worst that it could have been. Nothing was agreed and only served destroy any remaining credibility that oil producers had. Sundays meeting essentially pushed the reset button on the crude markets, putting the situation back to where the market was before hopes of oil producer discipline were first raised, now dashed. OPEC and Russia are still trying to keep the dream alive, saying that Russia is still open for an output freeze and OPEC simply needs more time. But the damage has already been done.
Markets did not like the news, with oil futures down 7%, The Aussie and the Loonie dropped following the Doha disaster. With the Yen reaching near 1 ½ year highs. Whilst currency traders seek refuge in the Yen it is widely expected that oil will fall further to the 13 year lows seen back in February. You can almost guarantee commodity currencies will follow in tandem with the diminishing oil price.
Asian markets also took a battering, with the Nikkei down 3%, it was a sea of red and given the strong correlation between oil prices and equities, Asian markets are not looking like they will have a good start to the week. So to start the week where we found ourselves in a position where commodities markets are in turmoil, currency markets are fickle and fiat, debt markets are unsustainable and the housing market is crumbling. Perhaps pushing the reset button might not be a bad move.
The ECB have been noisy this weekend, claiming they have no agenda and no intention of weakening the euro against the dollar. “with the Fed’s lowered rate path comes a weaker dollar and we need to avoid even the impression that we’re targeting the exchange rate.” The blades are still spinning from the helicopter they were all in last week though, think the keys are still in the ignition too.
A bit of Britain bashing came from the ECB’s Nowotny, Britain’s finance industry should not count on any easing measures from the ECB to moderate consequences that might arise if the UK opts to leave. “there is no reason for special concessions”. But I thought there was no easing and certainly no targeting exchange rates or creating that impression. So hopefully that is all clear and we can put that to bed now.
Greece were in a good place at the end of last week, before Lagarde got involved. Now they are not, little hope of a debt agreement exists until they sign up to another €3bn “contingency measure” on top of the €5bn in tax increases and spending cuts. These measures would only come into play if Greece falls short of its budget surplus targets. Which makes great sense because kicking someone whilst they are down always helps.
It would be remiss of us not to lastly mention Mario Draghi’s comments over the weekend, in summary, it is all alright and there is no evidence of asset bubbles from ultra-low rates. “”While accommodative monetary policies over an extended horizon may have unintended consequences for certain sectors in the form of excessive risk-taking and misaligned asset prices, we do not currently see any broad-based evidence of excesses in the behaviour of banks and other financial institutions and valuations of euro area asset prices,” well that is lucky.
Given that there is nothing to worry about thanks to Super Mario and his pals and with such a light day in terms of data and the papers having exhausted their column spaces with Brexit talk over the weekend, we see that today marks the start of ‘Exporting is Great week’ http://www.exportweek.ukti.gov.uk/full/ we wonder what the likes of Bojo, DC and Farage’s opinions will be on the drive to get more UK firms exporting their goods and services?
Have a great week.