{"id":59010,"date":"2023-09-09T17:28:03","date_gmt":"2023-09-09T21:28:03","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/why-crude-oil-rally-cant-be-ignored-by-investors-or-the-fed\/"},"modified":"2023-09-09T17:28:06","modified_gmt":"2023-09-09T21:28:06","slug":"why-crude-oil-rally-cant-be-ignored-by-investors-or-the-fed","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=59010","title":{"rendered":"Why crude-oil rally can\u2019t be ignored by investors \u2014 or the Fed"},"content":{"rendered":"
\n

Central bankers like to focus on core inflation readings, which strip out food and energy prices, but that doesn\u2019t mean that they, or investors, will be able to ignore a renewed surge in crude-oil prices.<\/p>\n

In a Thursday note, DataTrek Research observed that the correlation between energy prices and the core reading of the consumer-price index has returned to levels seen in the 1970s and 1980s. It stands at 0.62 since 2020, compared with an average of 0.68 in those prior decades, and well above its long-run average of 0.31. A reading of 1.0 would mean the measures were moving in perfect lockstep. (See table below.)<\/p>\n

\n
<\/p>\n

<\/p>\n

<\/p>\n<\/figure><\/div>\n

Core measures of inflation typically strip out volatile items like food and energy. While that often leads to eye-rolling by commentators who note that food and energy make up a big chunk of what consumers spend money on, the logic behind the move holds that such items are less responsive to monetary policy. <\/p>\n

Policy makers put more emphasis on the core reading for a better read on what they can influence. The core personal-consumption expenditures, or PCE, index, for example, is often described as the Federal Reserve\u2019s favored inflation indicator.<\/p>\n

But that doesn\u2019t mean rising energy or food prices can be ignored. Energy, after all, is an input, and can have an influence on overall prices. <\/p>\n

\u201cRecent data says energy prices hold more sway on core inflation than any time since the 1970s\/1980s, so rising oil prices are a legitimate concern for both the Fed and capital markets. Food inflation fits the same bill,\u201d said DataTrek co-founder Nicholas Colas in the note.<\/p>\n

Oil prices have been on a tear this summer, with the rally accelerating after Saudi Arabia announced earlier this week it would extend a production cut of 1 million barrels a day through the end of the year, with Russia also pledging to extend a supply cut. <\/p>\n

West Texas Intermediate crude
\n CL00,
\n -0.32%<\/bg-quote>,<\/span>
\n the U.S. benchmark, extended a winning streak to nine days on Wednesday, while Brent crude
\n BRN00,
\n -0.23%<\/bg-quote>,<\/span>
\n the global benchmark, rose for a seventh straight day. Both grades ended at 2023 highs Wednesday before pulling back modestly in the Thursday session.<\/p>\n

The surge in crude threatens to further drive up fuel prices, including gasoline and diesel.<\/p>\n

And rising oil prices this week got a chunk of the blame from investors and analysts for a pickup in Treasury yields as market participants began to pencil in a longer stretch of higher interest rates \u2014 or weighed the possibility the Fed may need to deliver more monetary tightening. That\u2019s also contributed to a rise in the U.S. dollar, with the ICE U.S. Dollar Index
\n DXY,<\/span>
\n a measure of the currency against a basket of six major rivals, hitting a six-month high.<\/p>\n

U.S. stocks have weakened in the face of rising yields, with technology and growth shares, which are particularly rate-sensitive, leading the way lower. The Nasdaq Composite
\n COMP
\n was on track for a 2% decline so far this holiday-shortened week, while the S&P 500
\n SPX
\n has pulled back 1.4% and the Dow Jones Industrial Average
\n DJIA
\n has lost 1%.<\/p>\n

\u201cWith oil prices rising again, we got to wondering about the spillover effects of this move on inflation. Will pricier crude derail recent disinflationary trends?\u201d Colas wrote.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Central bankers like to focus on core inflation readings, which strip out food and energy prices, but that doesn\u2019t mean that they, or investors, will be able to ignore a renewed surge in crude-oil prices. In a Thursday note, DataTrek Research observed that the correlation between energy prices and the core reading of the consumer-price […]<\/p>\n","protected":false},"author":1,"featured_media":59011,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-59010","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nWhy crude-oil rally can\u2019t be ignored by investors \u2014 or the Fed | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Central bankers like to focus on core inflation readings, which strip out food and energy prices, but that doesn\u2019t mean that they, or investors, will be\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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