The speculation as to the fall in the oil price has been a hot topic for the past few weeks. Overnight on Wednesday the oil price rose 2%, driven by a selection of stories. Firstly the department of energy reported lower inventories, secondly rumors of Libyan attacks from local militia on western oil fields had led to cuts in production, as well as news of an oil field explosion in Saudi.
Rising oil prices are one on the biggest causes of economic recessions and whatever the reason, a fall in the oil price should be welcomed. The reality is that there are economies in the world that rely on the oil price remaining stable, particularly at this level, so the odd story to keep everyone on their toes should not be entirely unexpected.
Mario Draghi again faced the world’s press, and as was expected he fielded questions on articles in the past few days of dissention in the ranks. The purpose being to establish how much conviction there is within the ECB to extend additional measures to stimulate the economy.
Mario came out fighting and seemed far from defensive, pointing out that disagreement is normal. He reiterated that the ECB are not yet out of bullets, and are unanimous in their desire to provide further stimulus measures. He appeared to focus on next month’s inflation data as being the possible trigger. Whilst many economists are still pushing the possibility of outright quantative easing, buying peripheral bonds, in our opinion this remains too complicated a step.
On the other hand recent speculation that the ECB buying corporate bonds is next on the agenda, appears to be gaining some traction. As we have said before, buying corporate bonds is a proxy for buying equities, and this should it happen it might be a very positive step for European equities in particular.
Lastly the Bank of England left interest rates unchanged on Thursday, to no great surprise. No statement accompanied the announcement, what will be of interest are the minutes in a couple of week’s time. One assumes the vote will remain 7-2 in favor of rates remaining where they are.