Quote of the Day
Leadership is action, not position.
Donald H. McGannon
The ongoing saga continues in Europe continues but today it is Italy that is driving the value of everything lower including oil prices. In spite of Berlusconi's planned exit from power, Italy is facing more turbulence as its debt yields soar and one of the main clearing houses raised margin requirements on Italian debt. Yet another dangerous and fluid situation going on in Europe, even as the Greek situation continues to unfold with a new Prime Minister yet to be named. The European cloud of uncertainty is yet again spreading and dominating the global market sentiment. It really does not matter much what else happens outside Europe in terms of economic data or fundamentals as every other risk asset market driver has taken a back seat to Europe once again.
For example in China overnight the latest data on inflation showed significant cooling in October, with the government reporting Wednesday that the consumer price index rose 5.5% from a year earlier, while producer price inflation dropped sharply to 5%. The CPI result compared to a 6.1% year-on-year rise in September. The October number matched a Reuters forecast and was slightly above a 5.4% projection from Dow Jones Newswires. The easing in wholesale inflation was far more dramatic, easing from September's 6.5%, and below respective forecasts of 5.7% and 5.8% from Reuters and Dow Jones Newswires. This is a positive for oil and other commodity markets as it suggests that the Chinese government may begin to move from a tight monetary policy to a more accommodative one which in turn would foster growth and thus oil and commodity consumption. Under more normal circumstances this data out of China would have resulted in an increase in oil prices, rather the EU/Italy/Greece situation has pushed oil prices down by over $1/bbl as of this writing.
After staging a modest recovery in equity values during Tuesday's US trading session and carrying through to Asia, the global equity markets are back on the defensive in Europe as shown in the EMI Global Equity Index table below. The Index is still up by 0.4% on the week but those gains are likely to disappear quickly as US equity futures are pointing to a sharply lower opening on Wall Street this morning. The so called risk-on/risk-off trade is not only cycling frequently through equities and other risk asset markets, it is occurring intraday raising volatility to above normal high levels. The pattern in equities is as difficult to glean as any other risk asset. For the moment equities are once again a negative for oil prices.