Tumbling commodity prices have once more proven the undoing of the FTSE, with a late slide in crude prices adding to the woes of an index heavily weighted towards commodity companies.
While some respite has been provided by the slowing rise of the US dollar it is clearly not enough with markets now looking towards the possibility of a 2016 rate hike which would drive the dollar sharply higher.
Yet again it has been the weekly EIA oil figures that have sparked this market back into life. This week’s rise of 2.3 million barrels was almost as large as the preceding week’s increase in stockpiles, putting fresh downward pressure on crude oil and taking stock markets with it.
The ghost of oversupply has not been laid to rest, indeed it seems to be returning with a vengeance. A rising US dollar and falling oil prices would potentially be a dangerous combination, threatening to unwind the gains made in equity markets over the summer. OPEC needs to do something, and quickly, but given their inability to reach a compromise, any action is still unlikely.
Mario Draghi will be wondering what he has to do to impact inflation, after yet another unimpressive showing pushed market pressure back onto the ECB president. While many would argue that the monetary policy actions from Draghi & co have been successful given the rise in inflation expectations, the thing that truly matters in whether prices are rising and it is clear that this remains a major problem.
Heaven forbid the idea that the Holy Grail of monetary policy actually does very little apart from inflate equity valuations, but the cases of Japan and the eurozone point towards diminishing returns from an already contentious set of policies.