Oil prices tumbled 22% in November, making it the worst month since October 2008.
No fears of recession or systemic banking crisis this time, but a confluence of negative factors: projected growth is down, driving down oil demand; sanctions against Iran are partially lifted; production in the US is unexpectedly high; and Saudi Arabia has had record production, though it said it wanted to decrease it... not to mention the major speculative positioning on oil. Another reason for the scale of the slide is market conditions, which are still fragile due to political uncertainties.
Logically, this movement drove core rates and inflation breakeven points down; the latter were especially bad in the eurozone, with, for example, German 10-year breakeven inflation rates down 18 bp over the month, which is the widest swing seen since early 2016.
The Brexit debate continues, with the agreement between the European Union and the UK government reached on 25 November. The UK now needs to get this agreement through the House of Commons, which is scheduled to vote on it on 11 December. Right now, it is hard to imagine the agreement being passed. So, does Theresa May step down? Will there be new elections? Or a second referendum? We still think that a Hard Brexit can be avoided, but it could be a rocky road ahead.
Investors were all riveted to the G20 summit slated for the end of the month in Argentina, with two key issues to address: trade tensions between the US and China, and discussions of a possible reduction in oil production by OPEC + Russia. And - for once this year - hopes were not dashed:
- Donald Trump and Xi Jinping agreed on a 90-day “truce” in their trade war;
- OPEC and its allies are working on an agreement to reduce production by 1.3 million barrels a day.
The last big news item is Jerome Powell’s about-turn: after saying on 3 October that monetary policy was still far from equilibrium (hawkish), he has said that it was in the end rather close. This change in tone has gone a long way towards calming the financial markets.
Ultimately there could be a year-end rally, especially in emerging markets (currencies, fixed income and equities), which have been the main beneficiaries of recent developments and also the markets that have suffered most this year. A rally in Europe is also a possibility, but it will depend on whether or not political issues are resolved.
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