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Washington worries and Doha disappoints

Published Monday, April 18th, 2016

The great and the good of global financial institutions and central bankers met in Washington this weekend. Leading the charge and in the red corner, wearing black is ‘The IMF’, ring masters in doom and gloom. Global growth has been “too slow for too long” producing “scarring effects” that threaten “a synchronised slowdown” leading to “secular stagnation”. The world economy is “more exposed to negative risks”, to “mounting risks of financial market turmoil” and to a “political backlash against globalisation”.

Jab, jab, jab followed by an uppercut warning that  there is a danger of “a pernicious feedback loop of fragile confidence, weaker growth, low inflation and rising debt burdens” which could knock 4% off the global growth rate over the next 5 years. It is difficult to imagine a bleaker view of the future, but it could all be sidestepped say the IMF if governments would focus on growth measures and embark on the structural reforms they have avoided in the short window of opportunity that is still available to them, which would add 2% over 5 years, a swing of 6%.

In the blue corner in the white trunks is ‘The Market’, always right and in upbeat mood. It has defied gravity, defeating all that is thrown at it from the pessimists. It has shown an extraordinary ability to absorb punishment and has rebound qualities that should never be underestimated. It had another very strong week with stock markets across the world delivering substantial gains.

Who is going to win this confrontation? Could both be right? Is it simply a matter of the IMF worrying about the medium to long term and the market focusing on the short term, or has the market become immune to the danger signals hoisted by the IMF, World Bank and BIS among many others which are always warning of catastrophe a year ahead? After all, the IMF does have an impeccably poor forecasting track record. Perhaps asset managers share the IMF’s concerns but cannot afford to be out of the market waiting for an Armageddon that never arrives and paying the price with investor withdrawals. There are no prizes for the bear that eventually calls it right but who misses out on years of upside.

to read the rest of the report, please click here

Posted by David Hufton