Oil can reach $100; what does it mean for markets and inflation?
by
FBS
How heavily will oil move the markets?
More and more analysts are sure Brent oil will surpass $100 a barrel. Some of them forecast that $125 and $150 levels will be reached over several months. As oil is one of the most (if not the most) traded commodities in the world, it can't help but impact inflation and financial markets. At least, people think so. So how heavily will oil move the markets, and what will the direction of the movement be? Let's find out!
The correlation of oil and stock market
An increase in oil prices usually lowers the expected economic growth rate and increases inflation expectations over shorter horizons. Decreasing economic growth prospects, in turn, reduces companies' earnings expectations, resulting in a dampening effect on stock prices. But that's in theory. So let's look at the correlation meter to find out the truth.
Here you can see S&P500 (US500) index (orange) compared with XBR/USD (UK Brent oil, blue). In addition, you can find a correlation meter at the bottom of the screen, a tool to measure the correlation between instruments and assets. It is evident that since the crash in March 2020, both US500 and XBR/USD have had a positive correlation. It is opposite to the market expectations of oil and stock price movement and shows that high oil prices don't always mean a slump in stocks.
The truth about oil
We searched the web and found out that researchers at the Federal Reserve Bank of Cleveland looked at movements in the price of oil and stock market prices and discovered that there is little correlation between oil prices and the stock market.
Also, it would be best if you separate correlation and causation. Oil does impact the US economy, but this impact is bidirectional. On the one hand, high oil prices create more jobs in the oil industry and increase investments in shale oil deposits. On the other hand, high oil prices also hit businesses and consumers with higher transportation and manufacturing costs. To be more specific, we can assume that change in oil prices causes money transfer from energy-consuming companies to oil production and vice versa. Oil doesn't drive stock prices because other price factors in the economy—such as wages, interest rates, industrial metals, plastic, and computer technology—can offset changes in energy costs.
In other words, the economy is too complex to expect one commodity to drive all business activity in a predictable way.
What to expect now?
Technically, oil is in a consolidation. A breakout of the $93.00 level will turn on the bullish scenario. However, considering the negative correlation with US500 at the present moment, the latter may decrease even more. The oil may move higher to the resistance of $91.00 per barrel in the short term.
XBR/USD H4 chart
Resistance: 91.00, 93.00, 95.00;
Support: 88.00, 86.00, 81.00
Disclaimer
This post is written and submitted by FBS Markets for informational purposes only. In no way shall it be interpreted or construed to create any warranties of any kind, including an offer to buy or sell any currencies or other instruments.
The views and ideas shared in this article are deemed reliable and based on the most up-to-date and trustworthy sources. However, the company does not take any responsibility for accuracy and completeness of the information, and the views expressed in the article may be subject to change without prior notice.
More and more analysts are sure Brent oil will surpass $100 a barrel. Some of them forecast that $125 and $150 levels will be reached over several months. As oil is one of the most (if not the most) traded commodities in the world, it can't help but impact inflation and financial markets. At least, people think so. So how heavily will oil move the markets, and what will the direction of the movement be? Let's find out!
The correlation of oil and stock market
An increase in oil prices usually lowers the expected economic growth rate and increases inflation expectations over shorter horizons. Decreasing economic growth prospects, in turn, reduces companies' earnings expectations, resulting in a dampening effect on stock prices. But that's in theory. So let's look at the correlation meter to find out the truth.
Here you can see S&P500 (US500) index (orange) compared with XBR/USD (UK Brent oil, blue). In addition, you can find a correlation meter at the bottom of the screen, a tool to measure the correlation between instruments and assets. It is evident that since the crash in March 2020, both US500 and XBR/USD have had a positive correlation. It is opposite to the market expectations of oil and stock price movement and shows that high oil prices don't always mean a slump in stocks.
The truth about oil
We searched the web and found out that researchers at the Federal Reserve Bank of Cleveland looked at movements in the price of oil and stock market prices and discovered that there is little correlation between oil prices and the stock market.
Also, it would be best if you separate correlation and causation. Oil does impact the US economy, but this impact is bidirectional. On the one hand, high oil prices create more jobs in the oil industry and increase investments in shale oil deposits. On the other hand, high oil prices also hit businesses and consumers with higher transportation and manufacturing costs. To be more specific, we can assume that change in oil prices causes money transfer from energy-consuming companies to oil production and vice versa. Oil doesn't drive stock prices because other price factors in the economy—such as wages, interest rates, industrial metals, plastic, and computer technology—can offset changes in energy costs.
In other words, the economy is too complex to expect one commodity to drive all business activity in a predictable way.
What to expect now?
Technically, oil is in a consolidation. A breakout of the $93.00 level will turn on the bullish scenario. However, considering the negative correlation with US500 at the present moment, the latter may decrease even more. The oil may move higher to the resistance of $91.00 per barrel in the short term.
XBR/USD H4 chart
Resistance: 91.00, 93.00, 95.00;
Support: 88.00, 86.00, 81.00
Disclaimer
This post is written and submitted by FBS Markets for informational purposes only. In no way shall it be interpreted or construed to create any warranties of any kind, including an offer to buy or sell any currencies or other instruments.
The views and ideas shared in this article are deemed reliable and based on the most up-to-date and trustworthy sources. However, the company does not take any responsibility for accuracy and completeness of the information, and the views expressed in the article may be subject to change without prior notice.
FXIFY Celebrates 1 Year Anniversary: Establishing Itself as an Industry Leader
Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
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Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
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#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
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Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
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#fmas #fmas24 #fmevents #networking #finance #africa
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Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
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Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Looking to expand your network in #Africa?
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20-22 MAY 2024
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#fmas #fmas24 #fmevents #networking #finance #africa
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
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Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
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Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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