Oil deal struck

Saudi output cut

As the Far East opened this morning the biggest mover was crude oil, which gapped 4.5% higher following news of bigger-than-expected production cuts, especially by Saudi Arabia. Two new prime ministers appeared as well, in Italy and New Zealand, replacing the ones they lost last week.

The promotions of Paolo Gentiloni and Bill English to PM from the posts of foreign minister and finance minister had considerably less impact than the oil deal. Analysts really do believe this agreement will stick, now 11 non-OPEC producers have said they will support the cartel's plan with cuts of their own. Russia's involvement is significant and the ruble arguably deserves the 1.9% gain it has marked up since Friday morning. Although Canada did not join the 11 it also will reap the benefits of their effort and the Canadian dollar starts this morning as the top performer among the majors.

More expensive oil will exert upward pressure on all sorts of other prices. Little around the word is produced without the involvement of oil for chemicals, energy or transport. The cartel's move is the latest in a series of commodity price increases that have been rattling the cage of the inflation monster. It does not mean investors should suddenly expect interest rate increases in Britain or Euroland but it does guarantee one being delivered by the Federal Reserve on Wednesday.

Not tapering

The euro continues to feel the ill effects of Thursday's ECB press conference. From its level prior to that meeting it has lost one and three quarter cents to sterling and two US cents. Investors obviously believe Mario Draghi's reassurance that the changes to QE do not amount to "tapering".

Tapering got a bad press a couple of years ago when the Fed announced it would wind down its asset-purchase programme. Since then central bankers have been terrified of using the word, lest it trigger a sell-off in financial markets. When the European Central Bank president announced that his own QE programme would be extended (hooray!) at a reduced pace of €60bn instead of €80bn a month (boo!) the hoorays eventually drowned out the boos and the euro moved lower.

Quantitative easing by the ECB will continue until the end of next year. Mr Trump's economic stimulus together with accelerating inflation will mean rising US interest rates. The combination encourages many analysts to expect the euro to fall through US$1 before too long.

Data-free day

No ecostats of any consequence are scheduled for release during the London session. 

Early on Japan reported orders for machine tools and general machinery both falling by an annual -5.6. Rightmove's index of UK residential property sticker prices put them an average of 3.4% higher than a year ago despite falling by -2.1% on the month. Tonight come figures for NZ manufacturing sales, Australian house prices and Chinese industrial production, urban investment and retail sales. 

There is nothing in between, which should make for a calm day.