Equity markets were not full of Christmas cheer in the past 5 days. The FTSE 1OO, S&P 500 and the eurofirst 300 all fell around 1%. Oil was the story of the week as OPEC finally agreed to cut production. The agreement will see 900,000 barrels of oil leaving gulf ports a day over the coming year, assuming the agreement is adhered to. The oil price rallied strongly on the news, Brent crude closed the week at $54.46. The hope is that this decision will now put a floor of $50 a barrel on the price of oil, and it could now trend back to $60 in the coming months. This led to energy and energy related sectors performing strongly over the week.
The pound has continued its recovery trading back up to 1.27 against the US dollar, and close to 120 against the euro. Economic sentiment certainly seems to have improved towards the pound, particularly as political uncertainty has increased in Europe. UK economic data remains robust, in the past week the Purchasing Managers surveys for manufacturing and construction for November both reported a number comfortably above 50 indicating both sectors are expanding.
US bond prices took a breather on Friday after the sharp rises that have taken place over the past month. This was despite the unemployment rate falling to 4.6% in November. There has been a lot of press speculation as to whether the recent moves in yields indicates the end of the big bull market in bonds. We have seen bond routs in the previous few years. The most notable of which as the Federal Reserve started to unwind its Quantitative Easing program in 2013.
In the coming days, the travails of Europe will come back to the fore in several ways. The Italian referendum, which in theory should have no real baring on the wider European economy, is now seen as another popularist stand. The Five Star Movement, led by what appears to one of the hairy bikers, oppose the measures, and wish to see a referendum on the euro. Win or lose are likely to make significant gains. The Italian Banks are presently trying to raise capital to strengthen their balance sheets, this vote may further hinder that process. Aside from Italy Greece may come back to the fore, however on this occasion the problems within other regions in Europe may help the region come to a more permanent solution to the Greek debt crisis.
On Thursday Mario Draghi will meet the assembled press for the monthly, post rate announcement press conference. The ECB are anticipated to announce an extension to the quantitative easing program beyond March at this meeting. Once again, he may well face a volley of questions on the strength of will towards the euro.
It’s another busy week for UK data, the services PMI will attract some headlines due to services being such a large contributor to the UK economy. On Wednesday, the latest Halifax house price data as well as industrial and manufacturing production for October. As for the US economy, the usual array of economic data ahead of the Federal Rate announcement the following week.