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Commentary on financial markets – November 2018

  • USA: Senate and House of Representatives elections
  • Oil price down by more than a fifth!


While this October was the most difficult month for equity markets in a decade, November saw at least a partial calming and reduction in volatility.

The United States held important elections for the House of Representatives and the Senate. The Americans decided that the Democrats would take control of the House of Representatives after eight years. In the Senate, however, the Republicans retained a narrow majority. The result of the election has reassured investors who expect that no radical changes in legislation will be possible and that the Trump administration will be under greater scrutiny. The two parties could also work together and agree to increase investment in infrastructure to boost corporate profitability.

Despite the calming of the markets, shares of technology companies continued to suffer, giving away some of their previous large profits. Apple shares in particular have come under a lot of pressure. While the company has managed to increase the price of its products, demand for its products is slowly decreasing. Therefore, the company has decided to reduce orders after the production of the latest models.

In Europe, the most important problem is Brexit and its practical solution, which is still in sight. Ministers and negotiating officials have variously walked out and Prime Minister May’s credibility is increasingly low. This situation is difficult for investors to interpret, because on the one hand uncertainty is bad news, on the other hand it increases the chances that the UK will to some extent back off its efforts to leave the European Union. The mood in British society is also changing, with more and more people believing that the impact of Brexit will be harsh for them.

The price of oil fell extremely during November. For example, the price of Brent crude oil fell below USD 60 per barrel, a level where it was last at two and a half years ago. The decline is due to the significant excess of oil supply over oil demand. Neither the imposition of US sanctions on Iranian oil nor the efforts of the OPEC cartel to limit production have succeeded in improving the situation from the point of view of oil producers. In fact, Saudi Arabia, a traditional US ally, is supplying the market with increased production.

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