Bonds & Equities higher, but Oil is the real story as OPEC leave it to the free hand of the market to dictate prices

Global equity markets edged higher again last week while government bond yields moved lower. Of the major indices, China’s Shanghai Composite was the standout performer, jumping 8%, buoyed by the recent interest rate cut and the prospect of a further loosening of monetary policy. It was a shortened trading week in US markets, with Americans ‘giving thanks’ on Thursday before splurging in the madness that is the Black Friday frenzy.

European government bonds were in demand as speculation mounts that ECB President Mario Draghi will eventually get past German opposition to   purchasing the sovereign bonds of member states. The German 10-Year bond yield dropped to 0.71% while the equivalent yields in France, Ireland and Spain closed the week at 0.97%, 1.38% and 1.90%.

The real story last week was in the oil markets as OPEC, the oil cartel, announced Thursday their decision to maintain the current production level target of 30 million barrels a day. Rather than cut production to stabilise prices (as they would typically do), against a backdrop of lower demand and increased supply from US shale production, they elected to leave it to the free hand of the market to dictate prices.

On the news, the price of a barrel of Brent crude oil fell 6.6% and closed the week down $10.21 at $70.15, the lowest level since 2010 and down almost 40% since mid-June.  As mentioned previously, there are winners and losers at a corporate and country level but it will also be a concern for central banks fighting deflation risk.