Technical & Fundamental Oil Reports Specialists

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Will the culprits please own up?

Published Wednesday, October 7th, 2015

The notion that stock markets and oil prices would come under downward pressure this week has not come to pass – not yet at least. Quite the contrary, the significant rally since the beginning of the week suggests that buyers have come out in force. Why might that be?

In the case of equities the obvious explanation is the relief of low interest rates for longer. The reasons for the Fed’s hesitation, the poor US jobs numbers and further downgrades in growth expectations have been cast aside in a return of the ‘bad news is good’ sentiment. The reallocation of money out of emerging market equities into developed market equities will also have contributed as will the rebound of commodity prices in pushing the all-important mining and energy sectors higher.

We had felt that the ‘bad news is good’ investor frame of mind had run its course and a more mature focus on global economic fundamentals had replaced it. Only yesterday the IMF produced another set of lower growth forecasts with global growth cut to 3.1% for this year (a six-year low) and 3.6% next year, with downside risk. It seems we were wrong. Zero interest rates means that the search for yield apparently eclipses everything until disaster is staring investors in the face. There is sufficient confusion coming from economic data for investors to view the alarmism of the World Bank, IMF, Brookings Institution, OECD and Bank of International Settlements with scepticism. Where else can you obtain a prospective 4% yield other than in DM equities?

to read the rest of the report, please click here

Posted by David Hufton