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A Strong determination from OPEC

The market was expecting some sort of a “vague” agreement around a production cut, but instead it got a concrete and coordinated narrative with detailed production cuts.

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The agreement even includes the more unsure members such as Iran and Iraq. Russia, not a member of the OPEC, was so enthused about the meeting that they increased their production cut from 200-250000 to 300000 bpd for the first half of 2017. There will now also be a non-OPEC meeting on the 9th of December of which Algeria, Venezuela and Kuwait will attend. OPEC will meet again end of May 2017, for a potential extension of the deal for another 6 months. Overall this is as bullish as it could get for Oil prices, with good chances to break the year high at $52 for WTI Light Crude and $54 for Brent over the short-term. However oil prices seem capped to the upside over the longer term, as US producers continue to drive down their costs through technological advancements.

Higher Oil price is impacting Inflation expectation and potentially monetary policy

After Trump, OPEC continues to drive inflation expectations higher. This could have implications on monetary policies across the globe, with a shift from monetary to more and more fiscal policies. This would be good news for banks and may help to drive credit higher in Europe. As mentioned in previous notes, we expect to have reached a bottom in terms of interest rates in Europe, hence most likely in Switzerland as well. The EUR/CHF slowly slid below the 1.07 level after the Trump shock. It seems the SNB no long has a clear-cut floor level in mind, but only intervenes to prevent high volatility on the franc, mainly around risk events such as the Brexit and the US elections. It may have intervened yesterday driving the EUR/CHF back to 1.08, in anticipation of a volatile weekend with the Italian referendum.

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