The major event this week was the unexpected deal resulting from the Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna.
-1.2M barrels production cut (including non OPEC countries). Markets reaction was brutal: +12% on crude over 2 days, back to 2016 highs. Given fixed income markets were already under pressure, bond yields climbed 15bps in 2 days. Over the week, bond yields moves are smaller though.
US macro data continues to come out robustly: Manufacturing indicators, Gross Domestic Product revision… all were above expectations. The only weak piece of data was consumption and wage growth. Similarly in China we had solid activity data.
In a nutshell, markets are still going in the same direction: reflation, higher yields, US equities higher and a stronger dollar, even if this week’s moves are limited.
Markets have been focused on two major events:
- The December 4th Italian referendum: The “No” won as markets expected.
- The December 8th ECB meeting. Many uncertainties regarding this meeting. How about tapering rumors? Technical adjustments? Is status quo a possibility? Many questions for a probably key meeting for early 2017.
We continue to think markets are going too far in the reflation / pro growth trade and that they will be disappointed by hard data early 2017.