Equity markets in Europe started the day on the front foot, but as the oil price retreated once again so did investors enthusiasm for stocks and shares. When one risk asset falls it is not surprising it has a knock on effect to others, either as a part of overall de risking or often as a source of funds for other losses. As we often point out in this blog what markets never react well to is uncertainty, at present as much as the press are starting to focus on the potential benefits the oil price fall may have in the long term, until the price settles investors will remain cautious. More pressure came to bear on Monday as OPEC affirmed that they are prepared to see the price fall further. The International Energy Agency also announced they have cut their expectations for oil demand next year. You often see investor polls; one question that gets asked from time to time is what will cause the next market turmoil? It’s fair bet that the sharp decline in the oil price would not have even been one of the options.
Europe in the form of Greece was the other main culprit in last week's turmoil as Greek ten-year bond yields reached almost 10%; there was some rest bite on Monday as yields fell back below 9%. Germany once again turned up the gas on the ECB as council member Jens Weidman was quoted in an interview reiterating their view monetary policy hasn’t reached the point at which advantages of quantitative easing would be greater than costs. The cat and mouse game continues in Europe, as Germany wants to ensure that structural reforms amongst the rest of Europe continue before sanctioning further stimulus measures. Trying to solve the ultimate puzzle of linking an economy that makes things, Germany, with one that is based around relaxation, Spain, will continue to be a tricky as the Rubik's cube was for 99.9% of the population back in the 1980’s.
The recent sell of that has seen the FTSE 100 lose all of November’s gains to now trade back to the lows of mid October, not the end to the year so far that many were anticipating.