Oil has crashed close to 20% in the past month as OPEC’s aggressive attempt to drive the US Shale Oil industry into the ground has continued apace.
Whether it has other implications for the global economy as a whole is open for debate.
It’s a question occupying the mind of Ivan Colhoun, NAB’s Chief Economist Markets, who wrote in a note to clients this morning that:
There is likely to remain considerable discussion about just what the continuing sharp decline in oil prices means – is it a signal of much slower global economic growth or greater energy supply? Depending on the answer, we either have a significant pressure for lower interest rates or an effective tax cut for global consumers.
Whichever way the discussion goes there is a chart of the relationship between Oil prices and the S&P which should scare the heck out of global stock traders:
Image may be NSFW.
Clik here to view.
Stocks tend totrack the price of oil. The last time they diverged like this was in 2007/2008 — and the market crashed shortly after.
For the moment, it seems S&P traders are voting this move is a tax cut for global consumers and will aid continuing accomodative monetary policy.
But it’s one scary chart.
