ALEX BRUMMER: Investors suffer a panic attack as stock markets tumble

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The great puzzle about oil prices is why have they been so weak when geo-political tension has been so high?

All the historical experience from the Yom Kippur war in 1973 onwards would suggest the opposite. Even the normally authoritative IMF has been predicting a price spike stemming from the war against Islamic State.

What we appear to be witnessing is a post-OPEC reaction in the markets. America’s great fracking and shale revolution has transformed the oil supply channel. The US can economically pump more oil as long as the price remains above $75-a-barrel, the approximate cost of opening new wells.

Oil price: Lower oil price usually is a symbol of a slowing global economy 

The tendency is to see the lower oil price as a symbol of a slowing global economy and therefore something threatening.

It is true that parts of the global economy are not firing as they should be, from China to the stagnant eurozone. But there is a whole different way of looking at this.

High oil and gas prices mean a huge transfer of Western capital from the advanced countries to a bunch of Middle East potentates, several of whom, most notably Qatar, have dubious records when it comes to the support of extremist Islamic movements.

At $80 a barrel, the money flowing from the oil-consuming to the oil-producing economies of the Middle East plunges by $200billion from an estimated $1trillion.

High oil prices act as a tax on Western consumers, both people buying petrol at the pumps and corporations. As long as the price cuts are passed on rapidly, it should be an enormous boost to the importing countries. It is a form of quantitative easing courtesy of the Gulf states that will lead to a windfall worth hundreds of billions of dollars.

In the light of this, one might have expected equity markets to strengthen. Instead, share markets on both sides of the Atlantic have chosen to respond to the gloomy indicators and the fears of an ebola epidemic that could clog up the wheels of global commerce.

The Dow Jones and S&P have fallen heavily. The FTSE 100 fell 2.8 per cent in latest trading and is down more than 10 per cent this week. American bond yields have dropped below 2 per cent.

There was always a risk that the withdrawal of real QE in the US, together with eurozone weakness and geopolitical upheaval, would prove treacherous for investors. As they say on soon-to-be-revived Dad’s Army: ‘Don’t Panic.’

Tax retreat

Among the reasons for the FTSE’s big wobble is the apparent death of the tax inversion.

It had been thought that despite the setback for Pfizer, when it sought to take over AstraZeneca, that AbbVie’s £32billion assault on Shire would sneak through. But political pressure in the US looks to have frightened AbbVie off.

That sent Shire shares down 21 per cent and has left some hedge funds, thinking they were on to a sure thing, nursing losses. It couldn’t happen to more deserving people.

The more serious point is that corporations in the US have decided that these deals are not worth the political flak. Walgreen pulled back from moving its HQ to Europe via Alliance Boots, Pfizer was put back in its box (for the time being at least) and AbbVie has buckled.

Meanwhile, the Irish government has been scared by its paymasters in the EU into backing away from the ‘double Irish’ tax avoidance scam. Even in a globalised world governments have the wherewithal to take control of some events.

Making allowances

The European Banking Authority (EBA) is seeking to show its muscle by clamping down on the use by the big global banks of ‘allowances’ as means of jogging around the European Union’s misplaced limits on bonus pay outs.

Whatever one may think about the greed and unacceptable bonus culture in the banks, the EU’s cackhanded directive, that restricts bonuses to 100 per cent of basic salary (200 per cent with shareholder approval) was bound to lead to distortions.

The reality is that toughened banking regulation, in the shape of stronger capital requirements, already has taken its toll on the bonus culture.

Moreover, why should anyone take any notice of the EBA whose only contribution to global finance were deeply flawed stress tests on the European banks that were woefully inadequate. Now that responsibility has been passed back to the European Central Bank.

The EBA should recognise reality, fold its tent and skulk away.

Wonga effect

The clampdown on Wonga and the other payday lenders has sent them scurrying for cover.

Among other things, they have gone on a recruitment drive for compliance specialists, with recruitment consultants MERJE reporting a 30 per cent surge in demand for internal enforcers.

Who says that an ill wind blows no good?