Next two weeks that will shape global markets ? 


Over the next 2 weeks of  December 2015 events will decide the fate and future directions of world markets as first the European Central Bank followed by Opec and then the US central bank gather to take landmark policy decisions.

The meetings could and will most likely dictate the flow of trillions of dollars and could mark the most significant shift in policy for a decade.

 

Europe reaches for the big guns ?  December 2nd

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Eurozone area weighed down by a banking system with over 1 Trillion Euros of non-performing loans (according to European banking Authority) and hence very low capital buffers, plus the continued Deflationary effects on the grouped economies, the ECB President, Mario Draghi, is widely expected to ramp up the quantative easing programme. Worries about falling prices prompted the ECB to unveil a €60bn (£44bn) a month quantitative easing package at the start of the year, they are now looking to double down on stimulus.

As Albert Einstein once stated :

Insanity: doing the same thing over and over again and expecting different results.

 

Opec Tightens Its Grip ?  December 4

The Opec group of oil-producing countries has exerted a vice-like grip on energy prices for more than half a century. Under the stewardship of the kingdom of Saudi Arabia, the world’s oil-rich states will decide whether to continue their price war.

The group will assemble on Friday December 4 to decide their production levels, and in effect set the direction of oil prices for the year ahead, and perhaps a generation.

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Global commodity markets have been shaken to their core during the past 12 months by the actions of a small cabal of oil-rich states. In Vienna just over a year ago, the Opec nations sent shock waves around the world when they launched a price war by ramping up oil output to crush rival producers. The move brought the curtain down on an era of elevated oil prices.

The price of the industry benchmark, Brent crude, has more than halved to $45 per barrel, from $115 in June last year.

Higher-cost producers investing in areas such as US shale and North Sea oil have tried everything from increasing output to cutting costs to the bone in a desperate bid to stay alive – to no avail !

The Saudis seem determined to press on with the strategy.

Lower prices will also cripple the development of rival producers in Iran and Russia, delaying their growth for decades.

Saudi Arabia is feeling the pain as about 80pc of revenues come from oil and it has spent about $90bn in reserves plugging the gap in its budget. However, it has enough oil in reserve to continue the price war for a few more years.

At below $50 a barrel, some $1.5 trillion of planned spending in the North American industry would be loss making, according to Wood MacKenzie.

 

Fed Turns The Screw and Raises Interest Rates ?  December 16th

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US Federal Reserve meets on December 16 to decide whether interest rates could rise for the first time since 2006. The central bankers have little idea what the impact of tightening monetary policy will actually be.

“When I look at bond markets today I feel we still have an immensely distorting effect from unconventional monetary policy, which means you cannot look at bond markets and believe they are pricing in all of the risks that are potentially out there, particularly around the solvency of governments,”   said Anne Richards, chief investment officer of Aberdeen Asset Management, at the CFA Institute European Investment conference last week. 

Truth be told, the central bankers have little idea of how world markets will respond during the coming two weeks. Money managers have been searching for any hint of how to position investments for the year ahead and could react very quickly once the ECB, Opec and US Federal Reserve decisions are known. Also take into consideration this time of year there is a dramatic decrease in liquidity and market moves tend to be over-extended in thin markets.