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And now for the fallout

Published Monday, December 7th, 2015

We now have some answers. The ECB has delivered additional stimulus measures, although they were less than the market had anticipated. OPEC has made no policy change which was fully expected. Non-farm payrolls came in at 211,000 in line with forecasts, clearing the path to a US interest rate rise when the Fed meets on Dec15-16.

The market reactions were telling. European equities tumbled confirming that their recent surge has been QE induced rather than a response to slightly better economic data and a belief that the eurozone economy has turned the corner. Oil prices fell suggesting that some cautious bears were holding back just in case OPEC pulled a rabbit out of the hat. The trapdoor is now open for oil prices to plumb new lows. US investors demonstrated their dalliance with schizophrenia, one day reacting badly to Janet Yellen stating her conviction that the US economy was on the right track and ready for a return to normalisation and the next day reacting favourably to the NFP numbers which give the same message.

In sum :- European/US policy divergence has been confirmed; low oil prices and the continued destruction of non-OPEC production is set to continue; the Fed is certain to raise interest rates when it meets next week. Last week the answers and this week the fallout. Last week the knee jerk and this week the more considered response. The knee jerk took the Eurofirst 300 down 3.6% on the week, the DAX lost 4.8% and the FTSE 2.2%. In contrast the S&P lost a modest 0.1% and the Dow 0.3%, but not without some rollercoaster action along the way including a 2% gain on Friday. Shanghai ended the week +2.6%, the Nikkei -1.9%, the MSCI world lost 0.5%. Russia was down 5.2% and Greece 6.5%.

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Posted by David Hufton