Markets are overreacting to US price and rates risks

2021 ◽  
Keyword(s):  
Federal Reserve ◽  
Futures Markets ◽  
The United States ◽  
Oil Price ◽  
Bond Markets ◽  
Crude Oil Price ◽  
Bond Yields ◽  
Content Type ◽  
Bond Yield ◽  
Ongoing Support

Significance The continuation of the modest manufacturing downturn follows the recent report of slower third-quarter GDP growth. Despite slower growth, bond markets are challenging an attempt by the Federal Reserve (Fed) to delink tapering from tightening by bringing forward their forecasts for rate increases: futures markets are pricing in two 25-basis-point rate hikes by end-2022. Impacts Equities are at a record high in the United States; providing ongoing support for this, real US bond yields remain in negative territory. The Brent crude oil price is near its highest since 2014; further upside will be limited but it is likely to stay high well into 2022. Germany’s ten-year bond yield, negative since April 2019, has risen by 40 basis points since end-August and will soon turn positive.

Markets question degree of monetary divergence

2017 ◽  
Keyword(s):  
Monetary Policy ◽  
Crude Oil ◽  
Federal Reserve ◽  
Oil Price ◽  
Crude Oil Price ◽  
Content Type ◽  
First Time

Subject Monetary divergence. Significance Markets have been little affected by the plethora of monetary policy news: the sweeping re-election of Shinzo Abe in Japan and his re-commitment to ultra-loose policy, the ECB decision to extend its asset purchase programme, albeit at a reduced size, the first UK rate rise in ten years and the announcement that continuity candidate Jerome Powell will replace Janet Yellen as US Federal Reserve (Fed) Chair. However, Powell’s appointment reinforces market questioning of US tightening as inflation remains stubbornly low. Impacts The dollar index has risen 4% since early September on Fed hawkishness; the divergence with Europe and Japan will push it modestly higher. Despite a plethora of vulnerabilities in markets, the Vix Index, Wall Street’s so-called ‘fear gauge’, still stands at a 20-year low. The Brent crude oil price passed 60 dollars per barrel recently for the first time in over two years, but further upside is very limited.

The optimal thermal causal path analysis on the relationship between international crude oil price and stock market

Kybernetes ◽  
2018 ◽  
Vol 47 (6) ◽  
pp. 1242-1261 ◽  
Author(s):  
Can Zhong Yao ◽  
Peng Cheng Kuang ◽  
Ji Nan Lin
Keyword(s):  
Stock Market ◽  
Crude Oil ◽  
Stock Markets ◽  
Oil Prices ◽  
Oil Price ◽  
Chinese Stock Market ◽  
Crude Oil Price ◽  
Content Type ◽  
Crude Oil Prices ◽  
Causal Path

Purpose The purpose of this study is to reveal the lead–lag structure between international crude oil price and stock markets. Design/methodology/approach The methods used for this study are as follows: empirical mode decomposition; shift-window-based Pearson coefficient and thermal causal path method. Findings The fluctuation characteristic of Chinese stock market before 2010 is very similar to international crude oil prices. After 2010, their fluctuation patterns are significantly different from each other. The two stock markets significantly led international crude oil prices, revealing varying lead–lag orders among stock markets. During 2000 and 2004, the stock markets significantly led international crude oil prices but they are less distinct from the lead–lag orders. After 2004, the effects changed so that the leading effect of Shanghai composite index remains no longer significant, and after 2012, S&P index just significantly lagged behind the international crude oil prices. Originality/value China and the US stock markets develop different pattens to handle the crude oil prices fluctuation after finance crisis in 1998.

Time-varying dependence measures: a comparative analysis through wavelet approach

2017 ◽  
Vol 11 (2) ◽  
pp. 350-364 ◽  
Author(s):  
Anyssa Trimech
Keyword(s):  
Energy Consumption ◽  
Crude Oil ◽  
Oil Price ◽  
Consumption Pattern ◽  
Time Varying ◽  
Crude Oil Price ◽  
Data Set ◽  
Content Type ◽  
Single Scale ◽  
Measure Of Dependence

Purpose This paper aims to investigate the pattern of dependence between crude oil price and energy consumption of the most important economic sectors in the USA, over different time periods, using monthly data set from January 1986 to July 2014 and a comparative study between linear correlation versus copula correlation as a measure of dependence over the single scale and the multiscale analysis. Design/methodology/approach The proposed method is based on the multiresolution analysis which gives more extensive and detailed description of the dependence price-consumption pattern over different periods of time. Findings The empirical results show that the dependence between variables is strongly sensitive to the time varying and generally increasing with time scale. In particular, the Pearson coefficients are less than the dependence copula measures. The single-scale analysis covers many time-varying dependences which are made clear, flexible and comprehensive by the description given by the multiscale approach. It explains better the structure of relationships between variables and helps understand the variations and improve forecasts of the crude oil price and energy consumption over different time scales. Originality/value The proposed methodology offers the opportunity to construct dynamic management strategies by taking into account the multiscale nature of crude oil price and consumption relationship. Moreover, the paper uses wavelets as a relatively new and powerful tool for statistical analysis in addition to the copula technique that allows a new understanding of variable correlation. The paper will be of interest not only for academics in the field of data dependencies analysis but also for fund managers and market investors.

Negative bond yields will fuel global equity rally

2016 ◽  
Keyword(s):  
Stock Market ◽  
Sovereign Debt ◽  
Asset Prices ◽  
Central Banks ◽  
Oil Price ◽  
Bond Yields ◽  
Fiscal Stimulus ◽  
Government Bonds ◽  
Content Type ◽  
Risk Appetite

Significance The gains in global equities stem from the expanding universe of negative-yielding government bonds, which now account for nearly a third of the stock of global sovereign debt. This is pushing yield-hungry investors into riskier assets, despite concerns about the sustainability of a stock market rally with weak fundamental underpinnings and central banks' ultra-loose policies driving asset prices. Impacts Sterling will remain under pressure because of the BoE's aggressive monetary easing, both conventional and unconventional. The recent oil price rebound will support equity valuations and risk appetite. Fiscal stimulus will benefit stocks in the construction and defence sectors.

US price-driven oil demand growth will fade in 2017

2016 ◽  
Keyword(s):  
Economic Activity ◽  
The United States ◽  
Oil Price ◽  
Major Contributor ◽  
Job Market ◽  
Content Type ◽  
Fuel Prices ◽  
Demand Growth ◽  
The Past ◽  
Oil Demand

Subject US oil demand growth. Significance The oil price collapse from mid-2014 that has caused pain for producers has been a boon to US consumers. With pump prices for gasoline at record lows, US motorists covered 3.186 trillion miles from July 2015 to July this year, smashing the previous record for any previous twelve-month period. This, along with a relatively strong job market and economic growth, has fuelled a resurgence in US oil demand growth after years of post-recession stagnation, and has been a major contributor to the modest price recovery seen over the past six months. Impacts Weaker demand should see a decline in US oil and refined product imports from OPEC and other producers. US refiners may see margins shrink and will look abroad for new customers. However, Latin America is likely to be the most attractive destination for refined product exports from the United States. Weaker demand growth will keep storage levels elevated despite production falls, acting as a drag on US oil and fuel prices. Increases in US freight travel from renewed economic activity will push up diesel prices.

Emerging market assets cushioned by growth outlook

2016 ◽  
Keyword(s):  
Emerging Market ◽  
The United States ◽  
Bond Markets ◽  
Investor Attention ◽  
Private Debt ◽  
Content Type ◽  
Sovereign Bond ◽  
Political Risks ◽  
Relative Attractiveness ◽  
Sovereign Bond Markets

Subject The sharp fall in global sovereign bond markets since late September is putting emerging market assets under pressure. Significance Global sovereign bond markets suffered their sharpest monthly loss in October since the 'taper tantrum' of May 2013. Emerging market (EM) assets had rallied strongly as investors sought higher yields amid ultra-low or negative yields in advanced economies. However, fears of higher inflation in the United States and the United Kingdom, coupled with growing concerns about the efficacy of ultra-loose monetary policies, have pushed up the yields on benchmark UK and US ten-year bonds, reducing the relative attractiveness of EM yields. Impacts Investors will continue to favour EMs with strong fundamentals and lower political risks. EMs are likely to lead the eventual recovery of global trade, keeping their assets in the limelight for investor attention. The EM rally not only reflects a search for yield in a low-rate universe but also improved EM economic fundamentals. The surge in EM private debt remains a concern, particularly corporate debt which has risen rapidly since 2008.

ECB faces multiple challenges in withdrawing stimulus

2017 ◽  
Keyword(s):  
United States ◽  
Interest Rate ◽  
Futures Markets ◽  
The United States ◽  
Quantitative Easing ◽  
Inflation Target ◽  
Content Type ◽  
Financial Conditions ◽  
Multiple Challenges ◽  
Double Digit

Subject ECB policy deliberations. Significance At its latest interest rate-setting meeting on September 7, the ECB admitted that the euro's dramatic double-digit appreciation against the dollar this year has tightened financial conditions, making it more difficult for the central bank to meet its 2% inflation target. Yet despite the euro’s disinflationary effects, the ECB intends to announce its plans to begin scaling back its quantitative easing (QE) programme at its next policy meeting on October 26. Impacts Futures markets see a probability of more than 50% that the United States will increase rates in December, up from 20% in early September. Euro-area economic confidence is at the highest since July 2007, and positive in every country, putting pressure on the ECB to unwind. Market concerns over whether OPEC/non-OPEC oil cuts will be extended could rise ahead of the next OPEC meeting on November 30.

Election reinforces the regime’s control of Algeria

2017 ◽  
Keyword(s):  
United States ◽  
Political System ◽  
The United States ◽  
Oil Price ◽  
The Political ◽  
Young Generation ◽  
National Liberation ◽  
Content Type ◽  
National Liberation Front ◽  
The Government

Significance The National Liberation Front (FLN) and Democratic National Rally (RND) received the most seats, as expected, amid widespread voter apathy. Impacts The government will continue its austerity strategy in response to the low oil price, and face more social tension and protests. The young generation will lose even more trust in the political system and opt for protest, resignation and emigration. The supporters of security and economic cooperation with the United States within the regime were strengthened.

Subdued inflation attenuates bond market strains

2018 ◽  
Keyword(s):  
The United States ◽  
Bond Markets ◽  
Equity Fund ◽  
Treasury Bonds ◽  
Content Type ◽  
Asset Bubbles ◽  
The United Kingdom ◽  
The Us ◽  
Us Presidential Election ◽  
Global Growth

Subject Bond markets outlook. Significance Eurostat today reported that the euro-area economy grew by 0.6% quarter-on-quarter in October-December 2017, and by 2.6% in the whole of 2017, outpacing growth of 2.3% in the United States and 1.8% in the United Kingdom. The yield on benchmark 10-year US Treasury bonds has surpassed the level it reached after Donald Trump’s US presidential election victory when investors positioned themselves for higher growth and prices. The tax bill and modestly rising prices have reinvigorated the ‘trumpflation trade’ of investors shifting from bonds to equities. Signs that the ECB may start withdrawing monetary stimulus faster than expected, coupled with robust global GDP growth, are putting further upward pressure on global yields. Impacts The US treasury secretary’s Davos remarks that a weaker dollar helps US activity could fuel further euro strength, challenging ECB policy. This month’s IMF update upgraded its global growth forecasts but warned of risks, especially asset bubbles and financial vulnerabilities. Global equity fund inflows are surging, fuelling dangerous overvaluations in certain sectors including technology.

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