The rout in oil markets continuesto hunt financial markets. Yesterday, most USstocks fell, with notably energy and industrial shares leading the declines, which overshadowed a fresh rebound in technology and biotech companies.

Asian stocks are increasing this morning, although traditional safe havens such as gold and Japanese yen are trading on a strong note. The Brent oil price fell beneath USD45 a barrel to join West Texas Intermediate in a bear market yesterday. Among the factors creating pressure on the oil prices were indications that stockpiles in America remain above seasonal averages and Libya resumed some production. Furthermore, the lower break-even of shale oil producers in the US has created concerns that even at oil prices in the 40s, these producers will fill the gap if OPEC producers decide to cut production further.

However, in our view, a weakening belief in global demand is one of the main drivers. The oil rout is also setting the tone in fixed income markets. Five-year inflation expectations are now below the levels before Trump was elected and the global reflation story took hold in financial markets. Hence, inflation markets are doubting the arguments by US Federal Reserve that the fall in inflation will be transitory, even as growth in the US is holding up at the moment.

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The reaction by US Fed governors this week will certainly be interesting to follow, such as central bank policy makers Jerome Powell, James Bullard and Loretta Mester today and tomorrow. In the UK, the Queen delivered her speech in parliament yesterday, laying out the policies of the UK government. Despite the speech, there is still no deal between the conservative party and the Democratic Unionist Party on support for a conservative-led party. The speech laid out 27 bills that will be put forward in parliament, of which eight were related to Brexit and its impact on immigration and trade. However, other previous policy priorities were dropped from the agenda, possibly due to the limited majority of a conservative government.

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