The G20 meeting did not produce anything tangible. Some of the developing countries, led by Brazil, said that they would help adding funds to the IMF if Europe would support them in getting more influence in the organisation. Since it is just a question of reinvesting the trade surpluses, countries like China and Brazil are simply trying to get maximum effect out of minor changes to their management of accumulated trade surpluses.
Not surprising that they try. But this is probably not the way to obtain an otherwise completely justified readjustment of influence in the IMF.
Perfectly justified, Germany came under pressure to show leadership. In return, Germany indicated that EFSF and ESM will be allowed to coexist for a time, temporarily increasing the “firewall” made by EU to protect the weaker countries in the EU.
In short, a major non-event.
Retail sales plummeted in December. The numbers did not look good at all. But it is too early to worry seriously. Most of Italy’s holiday shopping is early in the month (Saint Nicolaus’ day on 6 December), and that coincides with the morose sentiment right after Monti becoming PM on 13 November. We believe that there is a good chance that this is a one off.
Crude oil appears to be taking all the headlines and we are now seeing the traditional gamut of explanations that oil will go through the roof: China is growing, the world economy is growing, oil producers are running at max capacity, geopolitical problems can cause oil transports to be blockaded. And so on.
Markets are at least ignoring the fact that the threat of an Iranian blockade has anyway decreased dramatically in the past weeks, with intensive contacts between the Iran and the US.
I think there is one factor that should be taken into consideration. When the US introduced the QE2 programme in 2010, all commodities took off, as this asset class is small and illiquid compared to bonds and stocks.
The US has since then stopped adding liquidity, but ECB, BoE, BoJ, and PBoC (China) have taken over and are now flooding the money markets with liquidity. More to come from ECB tomorrow. Even if US is sidelined, reflation is still very much the talk of the town.
In the past four years, virtually all positive investment returns have been driven by the assets that reacted most strongly to the changes in the various reflation initiatives
Maybe we will have to look no further to find the true reason for oil’s price increase. But we can of course wonder why commodities, including oil, only reacts now, with a delay of several months. It will be a job for historians to find out why.