TE_Summary; Slick moves; Why the falling oil price isn't hurting markets
TE_Summary; Slick moves; Why the falling oil price isn't hurting markets
Slick moves
Why the falling oil price isn't hurting markets
Last time, the fear was that demand was falling. This time, it is excess supply
Buttonwood's notebook; Jun 22nd, 2017; by Buttonwood
Summary
1. Typically, for investors, high oil prices bad, low prices good, but two oil shocks in the 1970s ushered in stagflation and transferring power to oil producing countries, and low oil prices in late 1990s coincided with "dotcom" bubble.
2. The dropping in the second half of 2015 was seen as a bearish sign, but the recent 20% decrease did not stop the rally of the S&P 500.
3. Back in 2015, investors saw the fall as the outcome of falling demand in China, and if that assumption was right, demand for other goods would have suffered too.
4. Now, excess supply is the key to the low oil prices. Extra supply from Libya, Nigeria, and Iraq, and failure of Saudi's attempts to cripple American firms' production caused lower oil prices. In 2016, oil slump widened the spread to 1932bp of bonds issued by oil producing firms, and now, it is 531bp only.
5. Cheap oil is equivalent of a tax cut for Western consumers, good news for the equity market, and lowers headline inflation which can explain 2.15%, low 10y treasury bond rate.
6. Nonetheless, it's hard to tell whether supply or demand is the dominant force of this cheap prices; commodity index is also a 12m low; Chinese tightening of monetary policy, Fed's interest rate hikes, fiscal stimulus from Mr. Trump expected in 2018; low bond prices can be seen as a weaker economy.
Permalink: http://eoesociety.blogspot.com/2017/06/tesummary-slick-moves-why-falling-oil.html
Slick moves
Why the falling oil price isn't hurting markets
Last time, the fear was that demand was falling. This time, it is excess supply
Buttonwood's notebook; Jun 22nd, 2017; by Buttonwood
Summary
1. Typically, for investors, high oil prices bad, low prices good, but two oil shocks in the 1970s ushered in stagflation and transferring power to oil producing countries, and low oil prices in late 1990s coincided with "dotcom" bubble.
2. The dropping in the second half of 2015 was seen as a bearish sign, but the recent 20% decrease did not stop the rally of the S&P 500.
3. Back in 2015, investors saw the fall as the outcome of falling demand in China, and if that assumption was right, demand for other goods would have suffered too.
4. Now, excess supply is the key to the low oil prices. Extra supply from Libya, Nigeria, and Iraq, and failure of Saudi's attempts to cripple American firms' production caused lower oil prices. In 2016, oil slump widened the spread to 1932bp of bonds issued by oil producing firms, and now, it is 531bp only.
5. Cheap oil is equivalent of a tax cut for Western consumers, good news for the equity market, and lowers headline inflation which can explain 2.15%, low 10y treasury bond rate.
6. Nonetheless, it's hard to tell whether supply or demand is the dominant force of this cheap prices; commodity index is also a 12m low; Chinese tightening of monetary policy, Fed's interest rate hikes, fiscal stimulus from Mr. Trump expected in 2018; low bond prices can be seen as a weaker economy.
Permalink: http://eoesociety.blogspot.com/2017/06/tesummary-slick-moves-why-falling-oil.html
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