Oililocks:
Why Obama Needs Crude "Just Right"
20
September, 2012
The
performance of CRB's sub-industrials relative to Oil has been a
consistently useful indication of economic sentiment. Given the
recent performance, Oil
prices suggest a significant drop in US Manufacturing PMI -
sub-40! This
leaves President Obama with a dilemma: one the one hand he needs to
pressure Oil down (SPR jawboning?) in order to maintain some
semblance of economic growth and recovery (and perhaps jobs) but
given the highly correlated (and QEternity-driven liquidity
spillover) asset markets, a lower oil price fundamentally suggests
lower global growth and technically drags risk-assets lower - which
in turn moves stocks lower. Once
again an encumbent tries to find the Goldilocks-level of Oil - too
hot and growth slumps, too cold and markets slump, just right and get
re-elected
The
relative performance of CRB's sub-industrials / Oil (i.e. when oil is
outpeforming the blue line drops) implies - with a lag - that US
Manufacturing PMI will be dramatically lower by election time...
Of
course, one way around this 'correlation' is to bid up
sub-industrials also... but perhaps this helps to explain the recent
and sudden drop in crude prices...
It
does suggest that TPTB will be trying to suppress Oil vol once it
gets into its 'groove' but with event risks everywhere, that seems a
lot of tail-risk to take on...
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