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June will be a crucial month for oil prices

Published Monday, May 18th, 2015

In a family the children somehow are never all well behaved at the same time, so it would seem with the global economy. Last week it was the US economy that was misbehaving with dismal consumer confidence figures from the University of Michigan and poor retail sales figures. A consensus is developing that the US economy actually contracted in 1Q and is going to disappoint in 2Q. That means a deferred interest rate rise depressing the dollar and strengthening the euro which is the last thing the ECB wants having kick started the eurozone economy by pushing down the value of the common currency. Don’t believe all those assurances that there is not a currency war going on.

Against common sense, poor figures on the US economy and better figures on the eurozone led to new record highs for the S&P and weekly losses of a little over 1% for the FTSE 100 and Eurofirst 300. This is a fascinating and mad economic world we are living in. In response to the bond ‘rout’ Mario Draghi felt the need to assure his followers that the ECB’s QE programme would be completed in full even though “it will inevitably result in some local misallocation of resources”.

The message from Mario was that with a eurozone economy on its knees and stalked by deflation the ECB had to deploy its weapon of last resort and accept that there would be collateral damage. At the same time as he was justifying QE, the Bank of England cut its growth forecasts for the UK significantly and the Governor fretted about the level of productivity.

to read the rest of the report, please click here

Posted by David Hufton