This week, oil’s price drop was the primary over-arching market development:
Oil started to decline at the beginning of November and has attempted four counter-rallies since.But this week, prices rallied above the downward sloping trend line connecting the highs of the four-month move lower. There is still plenty of bearishness on oil’s daily price chart.But the close right below the 50 day EMA provides a glimmer of hope that oil might be finding a bottom.
On Monday, Draghi gave a speech to the EU parliament in which he reiterated the now familiar statement that emerging markets and commodity price weakness are the primary reasons for recent market fluctuations.He then noted that actions taken since the recession should allay investor’s concern about the overall condition of the financial sector.He made the following observation about the EU’s economy:
Against the background of downward risks emanating from global economic and financial developments, let me now turn to the economic situation in the euro area. The recovery is progressing at a moderate pace, supported mainly by our monetary policy measures and their favourable impact on financial conditions as well as the low price of energy. Investment remains weak, as heightened uncertainties regarding the global economy and broader geopolitical risks are weighing on investor sentiment. Moreover, the construction sector has so far not recovered.
Curiously absent is any mention of consumer spending, which Draghi specifically highlighted in previous speeches.Instead, his comments feature a downbeat assessment of the investment picture. The following table form the most recent Economic Bulletin place Draghi’s assessment into a broader perspective:
Over the 4Q14-3Q15 period, private consumption increased between .3%-.5%. But gross fixed capital formation was very weak.While it increased a strong 1.5% in 1Q15, it slowed sharply to .1% and 0% in 2Q15 and 3Q15, respectively. This week’s .6% drop in construction spending shows investment weakness continues (this data point has moved sideways for the last two years). Finally, Draghi promised a re-evaluation of the ECB’s policies at the next meeting:
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