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A stubborn Saudi Arabia & fellow cartel member producers decided not to curb crude oil output. Surprised? Neither were we. But what follows from Friday’s OPEC meeting is that crude oil prices will remain lower for longer, and essentially range bound, since no one wants to work together to relieve oil’s woes. Falling oil prices have long been a headwind for inflation, and markets threw an almighty tantrum on Thursday after the ECB ‘failed them.’ But the lack of a Saudi lifeline so desperately sought by central bank hawks (indirectly – they are just looking for inflation to pick up) might help to calm equity market nerves. With inflation now set to remain elusive for longer, we are set to remain in a nice warm QE/low rate/stimulus bubble bath complete with rubber ducks (cheap plastic ones made out of cheap oil).
It looks pretty clear now that the markets have little to fear. The US jobs report today simply bolstered expectations that the US will raise interest rates in December. That should lead to a stronger US Dollar, at least initially, which means continued pressure on the Euro. That’s good for European equities, and now that they’ve sold off so heavily into the end of the week, it’s even better for investors! I really don’t understand why the DAX gave up around 600pts on Thursday…. Soon, neither will anyone else. So the bearish outlook for oil translates almost directly to a bullish outlook for the stock markets. If that’s what the markets want – more QE – then that’s what they’ll likely get in the new year. Thanks for nothing OPEC, literally!
Gus Eden, Analyst
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