Global Markets Overview – November 28, 2014

With US markets closed for Thanksgiving, investors focused on European trade and the OPEC meeting. Yields in Europe continued to decline as markets continue to price in the possibility of QE. ECB President Mario Draghi spoke again and reinforced that all assets are under consideration should additional measures be required. This kept bond yields calm and drove European equities higher. Just to put it into perspective, the German 10-year fell to just 0.7%, while Spain's dropped to 1.89%.

With inflation likely to remain subdued on the back of declining oil prices, then there is a strong case for further easing. EUR/USD also retreated after testing key downtrend resistance at $1.2500. I still feel the pair is prone to further near-term weakness and is likely to retest November lows in the 1.2360 region. Later today we have the euro area flash CPI report and this will be key for how the euro trades in the near term.

Crude plunges over 6%

It had been a lineball call heading into the OPEC meeting, with investors uncertain members could agree on cutting production. OPEC decided against cutting production, maintaining it at 30 million barrels per day (mbpd), which saw crude oil slump to a four-year low, with Brent down around 6.3%. Interestingly OPEC's reason for not cutting was in the interest of restoring equilibrium. It'll also be interesting to see the political ramifications of the whole situation on producing nations struggling with lower prices.

Inflation fears as oil drops

While a weaker oil price is in theory positive for the global economy as it encourages a wealth transfer from producers to consumers, it seems in the short term it presents significant challenges for some key central banks. The reality is major central banks have been trying to push inflation higher and oil prices will make this difficult to achieve. As a result, the ECB and BoJ are likely to step up stimulus efforts if they are to reach their inflation goals.

Japan will be in focus today with a raft of releases including inflation set to hit the wires. At 10.30am Japan releases household spending, CPI and unemployment data. This will be followed by industrial production and retail sales at 10.50am. Should the data show the inflation run rate continues to fall short then speculation of further BoJ action will only ramp up. We are currently calling the Nikkei up 0.2% at 17,280.

Energy plays in focus

Ahead of the local market open we are calling the ASX 200 down 0.2% at 5387. It has been a very choppy week for the local market and I suspect we will see some consolidation heading into the weekend. The energy space is likely in for a bloodbath given the sharp falls in oil prices. However, this will also benefit some oil price sensitive stocks like the airlines and Caltex which is a refiner.

Other consumer stocks may also benefit from this. Iron ore snapped its losing streak and this may benefit iron ore miners today. Rio Tinto has an investor's day and this is likely to dominate headlines in the mining space today. There are a few AGMs to look out for including Primary Healthcare and Regis Resources.

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