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The tipping point?

Published Wednesday, July 30th, 2014

Serious sector sanctions imposed on Russia and Benjamin Netanyahu telling Israelis to prepare for a long war, and still the stock markets shake off the news like a boxer taking hit after hit and coming back for more. Eventually he will hit the canvas as will the markets.

The sanctions will damage the Russian and European economies at a time when both are very vulnerable. Even if Russia is forgiving of Germany’s clearly reluctant participation in the sanctions, it will impact the only country in the Eurozone with any economic legs.

There is every chance that the sanctions will be the tipping point, sending the Eurozone into deflation. The European Commission’s estimates that they will cut 0.3% off EU GDP growth this year and 0.4% next year. It believes the impact on Russia will be a 1.5% GDP cut this year and 4.8% next.

When the message sinks in and the impact of good quarterly results wears off, the market response could be very nasty. Yesterday German 10-year Bund yields fell to the shockingly low level of 1.11% in a mini safe-haven rush. The dollar strengthened and euro weakened in the belief the ECB will have to respond with QE.

to read the rest of the report, please click here 

Posted by David Hufton