Calm now. Storms coming?

Posted by: Paul Donovan

20 Jan 2020
  • US markets are closed. With politicians heading to Davos, there is a relatively quiet calendar today. The World Economic Forum (starting tomorrow) is likely to focus on climate change. Climate change affects economies and investment returns in the medium term. It affects markets through extreme events in the short term. But talking about climate change does not normally have an immediate market impact.
  • Oil prices have been volatile (though without extreme moves). There were supply disruptions in Iraq and Libya. Although the world consumes more oil than in the past, it takes less oil to produce a unit of economic output than in the past. This reduces the economic consequences of oil price changes.
  • German producer price inflation is due. This is a better reflection of corporate pricing power than is consumer price inflation. European inflation data has stopped offering negative surprises of late.
  • The interminably tedious EU-UK divorce continues to offer tedious headlines. The UK government's intention to diverge from European regulation is the latest focus. In practical terms, the extent of divergence may be questioned; the EU increasingly leads the setting of global trade standards. The government's position had a less-than-positive reaction from UK businesses and the EU.

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