Analysts of HY Markets think:
The dizzying rise in oil prices last week doesn’t bear the features that one might have come to expect since the face of the global economy was re-drawn in 2008. Global demand has seen world-equities and oil forge a strong correlation over the last 4 years, but is this about to change again?
Oil struck a nine-month high after promising data from the U.S. suggested their economy is showing signs of recovery. Trends since 2008 would lead us to hypothesise that global equity prices are strong - but this isn’t the case. Britain’s economy is stagnating, Germany and France posted poor economic activity data and China’s property market is crashing. The relationship between equity and oil prices threatens to dematerialise whilst insecurity over supply continues to loom.
Oil prices have risen 11 percent for the year amid concern that EU imposed embargos on imports of Iranian oil will cause major supply disruption. Iran is the second largest producer in the Organisation of Petroleum Exporting Countries, and its controversial nuclear program has seen China and other Asian countries reduce imports. Rumours continue to circulate that Japan, the world’s third-largest oil importer, may cut their imports by some 20% as they seek a waiver from US sanctions.
The re-balancing of the energy-equity relationship in the markets has seen the International Monetary Fund issue a warning over the growth of the global economy. It will be those nations who are fiscally less assured that suffer the most; higher energy prices results in less disposable income which in turn damages consumer confidence. Countries such as Greece can ill afford further hampering to their economic growth.
