In a recent research report Standard Chartered provided a nice cheat sheet for the increasing energy woes. They provide a one stop shop for the various impacts on all asset class at different oil prices. Although their stress levels appear somewhat higher than many other research firms (Merrill says $120 while SC says $150)the cheat sheet is quite helpful in gauging how oil prices will impact different assets as prices move ever higher. The following is via Standard Chartered:
- The rise in oil prices so far will slow the world economy only marginally, but will boost inflation.
- At USD 150/bbl, the world upswing would slow sharply; at USD 200/bbl, we would expect a new recession.
- Many emerging-market central banks and the ECB will still hike rates at moderately higher oil prices, on fears of inflation.
- The Fed is focused on core inflation; an oil-price spike to USD 150/bbl would bring QE3 as the Fed feared recession.
- Credit – Higher oil prices are negative for Asia, positive for the Middle East; at USD 200/bbl, credit spreads would blow out across the board on recession concerns.
- Rates – An oil price of up to USD 150/bbl is bearish for Asian rates, particularly MYR and INR. At USD 200/bbl, growth fears would dominate and rates curves would flatten.
- FX – USD would weaken initially, except at USD 200/bbl; in Asia, we favour long IDR versus shorts in THB, PHP, INR.
- Commodities – Bullish for food, aluminium and gold.
Source: Standard Chartered
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.