Macro events are likely to once again dominate investment sentiment in the coming days. Later today we get the result of the OPEC meeting. Having had a speculative rise in the lead up to the meeting, oil retreated on Tuesday as hopes of a deal faded. Iran’s energy minister was quoted saying” Iran was not prepared to make any output cuts”. Should no agreement be found, the speculation is that oil could fall back to $30 a barrel. Any fall could put further pressure on emerging economies, many of whom rely on oil exports, at a time when they are dealing with the stronger dollar.
One of the concerns post Brexit was the subsequent fall in sterling and fears over the strength of the economy. So far, touch wood, the UK economy has stood up relatively well, although the performance of those sectors closely correlated to the UK economy continue to languish, suggesting that investors remain cautious for the outlook for the year coming. The UK needs overseas investors to help fund itself by buying gilts, and to do that overseas investors need to feel confident of the economy. On Tuesday, the Bank of England announced that for the third straight month foreign investors have been net buyers of gilts. Gilts held by overseas investors increased by 10.55bn pounds in the last month according to a report in Tuesday’s Financial Times. One would consider that a vote of confidence in the UK economy, and the currency.
Ahead of the meeting of the Federal Reserve on the 14th of December, the US economy continues to look in a state of rude health. The Commerce Department reported on Tuesday that a key measure of corporate earnings grew for the third quarter in a row. Compared to this time last year after tax profits grew by 5.2%, the strongest growth since the fourth quarter 2012. Tuesday saw the latest estimate for US GDP for the third quarter, which came in at 3.2%, the strongest growth since 2012. The meeting in December is looking to be the easiest one they will have had for a while.
Aside from Brexit, Europe will continue to feel pressure from within, with the possibility the Italian Referendum will cause further strain. Greece may come back into focus as Eurozone finance ministers once again look for solutions to Greek debt bailout program, ahead of the next meeting on the 5th of December. One would imagine the current strains between Europe and the UK, would help the Greek cause as European leaders should want to provide a united front at this time. They have been known to play hard ball with Greek debt negotiations in the past, now may not be the right timing for that tactic on this occasion.