Wall St sees China slump as pump relief, to a point: McGeever



By Jamie McGeever

ORLANDO, Fla., Aug 17 (Reuters) - A dismal batch of indicators this week significantly darkened the economic clouds over China, but there is a clear silver lining for Wall Street and world markets: falling oil prices.

As the slowdown in the world's largest crude importer pushes oil lower, inflation pressures have eased, giving the U.S. Federal Reserve more leeway to ease up on its aggressive interest rate-hiking campaign and engineer the economic 'soft landing' it desperately desires.

Of course, there is a potential growth shock for the rest of the world that could intensify recession fears in the United States and elsewhere. Risk assets would struggle in a recession.

But investors' glass is half full, and has been for around two months since the Fed's June policy meeting and what increasingly appears to be the recent high in oil and 'peak inflation'.

Brent crude fell 3% on Monday after Beijing's data dump to its lowest since before Russia's invasion of Ukraine in February, and Wall Street closed comfortably in the green. Oil fell a further 3% on Tuesday and the S&P 500 and Dow both rose to fresh four-month highs.

The inverse correlation between oil and Wall Street is the tightest it has been since March. When oil falls, the S&P 500 rises.

Cheaper oil has put markets in a sweet spot, and as Brian Jacobsen, senior investment strategist at Allspring Global Investments notes, the equity rally has been accompanied by an equally steady recovery in credit markets.

But he cautions that it could soon sour.

"At what point does it reflect demand destruction setting in? Demand destruction is not a good ingredient for a continued equity market rally," Jacobsen warns.

Jacobsen reckons $85 a barrel is an important area. A break below could represent a less benign relationship between oil, inflation, demand and economic activity.

Brent's decline of around 25% since June 14 has been accompanied lock step with a growing belief that the United States has reached 'peak inflation'. A range of consumer and producer price indicators, and consumer inflation expectation surveys, all point in this direction.

POSITIVE SUPPLY SHOCK

Since its trough on June 17, the S&P 500 has rebounded nearly 20%, the VIX volatility index is under 20 for the first time since April, and high yield U.S. credit spreads have tightened around 175 basis points.

Alan Ruskin at Deutsche Bank notes that in 'normal times' a steep decline in China's economic performance would have a deeply negative impact on global activity. It accounts for over 40% of global demand in iron ore, coal, copper, aluminum, steel, nickel, and pork.

But the slowdown could also turn into a positive supply shock - weaker demand from China leading to lower commodity prices and reduced bottlenecks. Softer commodity prices are already easing inflation pressures and inflation expectations.

"Initially at least, the aggregate impact on global risk will be a positive, as global assets take their lead from the knock-on impact to U.S. markets in particular. This favorable risk influence is stronger now, precisely because it fits with the ... 'peak inflation' thematic," Ruskin wrote this week.

This relatively benign 'Goldilocks' scenario - falling oil prices, easing inflationary pressures, rising risk assets - could get another fillip if a U.S.-Iran nuclear deal is struck, which would allow more Iranian oil exports.

But these arguments and scenarios are circular. Even lower oil, higher stocks, and narrower credit spreads would ease overall financial conditions without fail. This is exactly what the Fed is trying to avoid, and Jerome Powell and co might be tempted to push rates even further into restrictive territory.

That's when 'demand destruction' fears would likely start to dominate investors' thinking. We might get there, but we are not there yet.

Related columns:

- Breakdown in 'breakevens' holes inflation buffer (Aug. 10)

- 'Peak inflation' ambiguous for dollar (Aug. 17)

(The opinions expressed here are those of the author, a columnist for Reuters)



Brent oil & US inflation breakevens Link
Brent oil & S&P 500 correlation Link



By Jamie McGeever; editing by Diane Craft

免責聲明: XM Group提供線上交易平台的登入和執行服務,允許個人查看和/或使用網站所提供的內容,但不進行任何更改或擴展其服務和訪問權限,並受以下條款與條例約束:(i)條款與條例;(ii)風險提示;(iii)完全免責聲明。網站內部所提供的所有資訊,僅限於一般資訊用途。請注意,我們所有的線上交易平台內容並不構成,也不被視為進入金融市場交易的邀約或邀請 。金融市場交易會對您的投資帶來重大風險。

所有缐上交易平台所發佈的資料,僅適用於教育/資訊類用途,不包含也不應被視爲適用於金融、投資稅或交易相關諮詢和建議,或是交易價格紀錄,或是任何金融商品或非應邀途徑的金融相關優惠的交易邀約或邀請。

本網站的所有XM和第三方所提供的内容,包括意見、新聞、研究、分析、價格其他資訊和第三方網站鏈接,皆爲‘按原狀’,並作爲一般市場評論所提供,而非投資建議。請理解和接受,所有被歸類為投資研究範圍的相關内容,並非爲了促進投資研究獨立性,而根據法律要求所編寫,而是被視爲符合營銷傳播相關法律與法規所編寫的内容。請確保您已詳讀並完全理解我們的非獨立投資研究提示和風險提示資訊,相關詳情請點擊 這裡查看。

我們運用 cookies 提供您最佳之網頁使用經驗。更改您的cookie 設定跟詳情。

風險提示:您的資金存在風險。槓桿商品並不適合所有客戶。請詳細閱讀我們的風險聲明