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Tags: opec | oil | yellen | fed

OPEC Grumblings Have Only Confused Crude Market and Investors

OPEC Grumblings Have Only Confused Crude Market and Investors

(Dollar Photo Club)

By    |   Wednesday, 28 September 2016 07:46 AM EDT

The oil price has been gyrating around as the Organization of the Petroleum Exporting Countries (OPEC) have an informal gathering in Algiers, the capital of Algeria, to decide what to do.

What it appears they have decided to do is to confuse markets.

The Saudis hinted they might agree to cut production, the Iranians have rebutted that hint. In response, oil prices have slid.

Logic guides us to believe that oil will move higher over the course of 2017 with $55 per barrel a price to keep in mind. Global growth is still supportive enough for oil demand.

Of course, that sort of price level is hardly comparable with the glory days of $100-plus oil and it is something that the economies, central banks and sovereign wealth funds of the Middle East will have to learn to deal with, which in turn is a global-growth negative.

For the time being, the range in the oil price is not going to have much of an impact on inflation or trade-economics in the developed world.

Meanwhile in Japan, Koichi Hamada, an advisor of Prime Minister Shinzo Abe, has been declaring that the yen’s strength is something that the Bank of Japan needs to take note of and the Ministry of Finance has to fight, because it is hurting confidence in the economy.

This is one of those worrying remarks that might suggest that Japanese policy makers have not adapted to the structural changes of the modern economy.

A strong yen weakens profit margins of Japanese exporters, certainly, but the sort of moves Hamada is talking about do not impact production in Japan.

A strong yen may also benefit the Japanese consumer. Japanese consumers have the highest inflation expectations in the developed world, in part because of commodity import prices were boosted by the weaker yen earlier on. If that effect fades, then consumers may feel that their real standard of living is doing a little bit better and they may even then spend some more money.

A strong yen is not necessarily something to frighten investors.

In the U.S. and Europe, central bankers are appearing before politicians today and in light of concerns of the political threats to the sanctuary of central banks’ independence, this could be a rather significant set of events.

Fed Chair Janet Yellen is talking on banking supervision and, maybe, the Fed's behavior has lent itself to a lot of time for attack, but members of Congress are sort of kind not to get really get worried about.

On the contrary, European Central Bank (ECB) President Mario Draghi is likely to face a rougher ride before the German Bundestag, which is the German equivalent of the U.S. House of Representatives, but we will have to wait until the session is over to know his comments as everything will be taking place in a closed session.

The issue there is that the glittering wonder that is the euro, which of course is not a properly functioning monetary union, is that the monetary policy that is required for the aggregate of the 19 Euro area member states is different from the policy that is required for a country like Germany.

German inflation is being boosted in part by the ECB’s quantitative policy and the Germans are not entirely comfortable with that idea.

We also have German consumer confidence data that came in a little bit weaker than expected and reflect, perhaps, September's economic expectations that were down for a third consecutive month, as well as ongoing terror threats and political uncertainty.

This came in the wake and in contrast of very strong U.S. confidence that is now at its highest level since before the latest recession and reflects U.S. consumers’ more positive view of the labor market.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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German inflation is being boosted in part by the ECB’s quantitative policy and the Germans are not entirely comfortable with that idea.
opec, oil, yellen, fed
Wednesday, 28 September 2016 07:46 AM
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