Which is a better bet, oil or the dollar?
In the space of seven months the price of oil has plunged from $115 a barrel to $45, marking a decline of 60%. This has happened in tandem with the dollar’s appreciation. The greenback has risen about 25% during the same period.
Financial markets do not have a habit of moving in straight lines. Even the most firmly entrenched trends always end up giving way, if only temporarily. At the present juncture we recommend extreme caution to investors holding short positions on oil and/or long positions on dollars. We think the former will prove a far better play in the coming weeks.
The ECB acts out of desperation
Everyone was eagerly awaiting the European Central Bank’s decision last Thursday on quantitative easing, and this time there were no hums or haws. The ECB opted for a vast programme of bond purchases that we will examine closely in this article.
In addition to covered bonds and asset-backed securities, the ECB will now buy sovereign debt issues of Euro Zone countries. This is the largest segment of the bond market, amounting to some €6.5 trillion of outstanding paper.