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COP 21, ECB and OPEC on this week’s menu

Published Monday, November 30th, 2015

In a QE world geopolitical tensions do not seem so serious. QE acts like a relaxant with the result that investors have shrugged off the terrorist attacks in Paris and the downing of a Russian fighter jet by Turkey. They believe that monetary authorities will do whatever is necessary to alleviate any short-term pain and worry about the longer term consequences later. The forthcoming decisions to be made by the ECB and the Fed occupy investors’ minds more than war in Syria and terrorism.

The longer term consequences are all about bubbles. Bubbles in the sovereign, corporate and junk bond markets. Property bubbles. M&A bubbles. Debt and credit bubbles. Equity bubbles fed by share buybacks and dividends funded by cheap borrowing. Deflation is therefore a concern not just in the conventional ‘inflation’ sense but in the sense of whether this stream of bubbles can be deflated without lasting damage. Next year will be as much about whether these monetary induced bubbles can be landed softly as whether the Chinese economy lands softly.

That is for next year. As we set out in Friday’s report, 2015 still has an intriguing December to negotiate with a very crowded list of events with global consequences, beginning with the 21st UN Climate Conference which starts in Paris today and is due to last two weeks. On Thursday the ECB meets and on Friday OPEC. The ECB is widely expected to take policy decisions that will add more stimulus to a lifeless eurozone economy. OPEC are expected to re-confirm their market share strategy with the only issue being whether the meeting will break up in acrimony with some members leaving their resignation papers on the table.

to read the rest of the report, please click here

Posted by David Hufton