The recent
stories of both crude oil and Iron Ore, perhaps the most important commodities
from the point of view of global commerce, are encapsulated in the charts above.
As can be seen, both have been inexorably falling back to the levels that
marked the Global Financial Crisis, after moving upward in its immediate
aftermath in the expectation that normality was to be re-established as a
result, presumably, of the actions of various central banks around the world.
A dead cat
bounce is a reference to a hopeless small rise after a fall – just as if a dead
cat was dropped from a high building it would bounce off the pavement, but that
would not be sign that it had come back to life.
Now it
has been reported that the U.K., once a powerhouse of heavy industry and
steel making, has called for an E.U. summit to discuss the threat to European
steel making from the production and marketing practices of China, where state
subsidies and lower Health & Safety and environmental protection
legislation have allowed for the dumping of very cheap steel onto the world
market.
And in
October the IMF saw fit to produce a paper that examined the effects of
long-term oil price stagnation on the economy of Saudi Arabia.
Will impact all monetary policy
decisions
For the
Federal Reserve and the Bank of England, the two factors that most influence
core interest rate decisions are employment, or the lack of it, and inflation
(or deflation). In the case of the ECB, the only mandate it has is what it
calls price stability, for which read inflation / deflation.
The current
low and falling inflation regime in global terms is directly related to the
price of oil and other hard commodities. As long as the tendency and outlook
for the prices of these as outlined above continues, it cannot be seen as
likely that, even if the Fed marks a start to a rising interest rate cycle at
its December meeting, ongoing rises into the future will continue in any
meaningful way, with consequent implications for the value of the U.S. dollar.
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