
Market Insights:
May 30, 2023
Posted on May 30, 2023
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Tuesday Takeaway
Posted on January 07, 2015
The Markets “…bubbling crude; oil that is, black gold, Texas tea.” The decline in oil prices accelerated during the fourth quarter of 2014. The main culprit was a supply and demand imbalance. Increased production in the United States, which is currently the biggest oil producer in the world, means there is an ample supply of oil. However, slowing growth in China and other countries, along with relatively warm winter weather in the United States, has lowered demand. Oil prices are also affected by expectations. The Organization of Petroleum Exporting Countries’ (OPEC’s) fourth-quarter decision to maintain production levels and market share (rather than lowering production and pushing prices higher) has created an expectation that prices may remain low for some time. Low oil prices are expected to be a boon for the world economy, consumers, and countries (like India) that are heavily dependent on oil imports. However, low prices are a detriment to countries that are heavily dependent on oil exports and could result in financial crises and geopolitical upheaval. The Economist reported analysts believe Russia needs oil to be priced at $100 a barrel to meet its 2015 budget. Venezuela, which was in financial trouble before oil prices fell, needs oil at $120 a barrel to finance its spending, and Iran needs prices even higher, at $136 a barrel. Big trouble in Russia Like Mentos® and soda pop, a currency crisis fizzed up in Russia during the fourth quarter. The Economist said:
“In the world of central banking slow, steady, and predictable decisions are the aim. So when bankers meet in the dead of night and raise interest rates by a massive 6.5 percentage points it suggests something is going very wrong. It is: the Russian currency crisis many feared is now a reality… and the mood in Moscow close to panic. Russians are right to worry: they are heading for a lethal combination of deep recession and runaway inflation.”
Retailers have begun re-pricing their goods daily and ruble jokes are proliferating, according to The Moscow Times. One example, “I’m investing my life savings in the Euro.” “Don’t you mean Euros?” “No, just one Euro. It’s all I can afford.” Déjà vu Greece The potential for a Euro crisis reared its ugly head (again). Greek markets took a decidedly pessimistic turn when the country’s government decided to hold elections. At issue are promises Alexis Tsipras, presidential candidate of the Syriza party, made about rolling back austerity measures and cancelling a portion of Greek debt. If Tsipras is elected, Greece might leave the Euro. Signs of volatility in U.S. markets Markets sparked and popped a bit in the United States during the fourth quarter. Investors, who had been unconcerned about the possibility of short-term market volatility for much of 2014, had a change of heart during October – the same month the Federal Reserve ended quantitative easing. The Chicago Board Options Exchange’s Volatility Index (VIX), which is also known as Wall Street’s fear gauge, rose into the 20s (above its long-term historic average of 19.6) for several days. Stock markets experienced big swings, too, and then things settled back down. The VIX shot higher for a few days in December, as well. Experts say these microbursts may continue into 2015.