OPEC surprised all observers on Wednesday when it announced a cut of its oil production by 900?000 barrels per day...
OPEC surprised all observers on Wednesday when it announced a cut of its oil production by 900?000 barrels per day to make room for increasing crude exports from Iraq. The decision was triggered by an optimistic, some analysts say too optimistic, forecast by the new Iraqi oil minister. On 4 December, the cartel will meet again to reassess the situation. The move makes it clear that OPEC is currently maximizing revenues by ignoring the threat of loosing market shares to non-OPEC producers like Russia. Some observers are even speculating that the cartel is trying to bring crude prices above the self-proclaimed price target band of $22-28. But at least it shows that OPEC is ready to defend its target price.
On Thursday, gold prices hit a seven-year high which gave hope to speculators that bullion prices could soon break the $400 barrier. The OPEC decision which shocked the oil and equity markets seemed to have been the catalyst for the gold market to break to new levels. There is the fear that higher oil prices could disrupt the US economy. Gold is therefore seen as a safe-haven asset which is also a hedge against possible inflation.
This week, the Argentinean government presented its proposal for the restructuring of the country?s defaulted bonds. Two years ago, Argentina defaulted on $95 billion. Over 100 different bonds denominated in several currencies are involved, which makes the restructuring process one of the most complex in history. It is even further complicated by the fact that a huge number of private creditors, among them almost 500?000 retail investors from Europe and Japan are involved. The latest proposal was met with dismay among the bondholders. Key of the whole package is a debt capital reduction of 75 percent. But analysts doubt that this is the final offer as it would leave investors with far less than in earlier restructurings. Therefore, the proposal can be interpreted as the starting point of the whole restructuring process. Bonds, maturing in 2008, are traded at 29 percent of their face value. This is an indication that the market expects to recover more than the 25 percent, which is offered by the Argentinean government.
The question of the correct value of currencies was again a hot-discussed topic this week. Last Saturday, the G7 countries issued a statement which emphasized that the market should determine exchange rates and not central banks. The statement has shaken the currency market this week. On Monday, the yen rose to its highest level in almost three years. The G7 announcement seems to be particularly be directed at Japan. Japan started to complain in recent weeks about the Chinese fixed currency system but spent itself more and 9 trillion yen in order to keep its currency at an artificial low level. The market expects that Japan will come under increased pressure to stop buying dollar assets. The US seems to favour a cheaper dollar and the European Union is also not fond of a stronger euro. However, none of them wants to hamper the fragile recovery of the Japanese economy. They hope that a more prosperous Japan can give important inputs to the world economy. Therefore it might well be that the communiqué was directed at Beijing and not Tokyo. But the majority of the market participants was sure that it was a criticism of Japan. It is likely that these questions will also catch our attention in the coming week.