Crude Oil Dives Below $70, Eyes 50s: Inflation Set to Follow Suit?
Stocks finished lower as risk-off seemed to be a theme yesterday, with oil prices slumping below $70. Oil has been a harbinger of all things these days, and the best thing that can happen with oil, at least over the next 6 to 12 months, is to do nothing. Rising oil could stoke more inflation while falling oil suggests global growth is a real concern. Oil above $70 and below $90 would be ideal, but unfortunately, that is not happening.
If oil is in a retracement of the rally from the 2020 lows, it could still have more to fall as it completes a wave “C” down; at least, that’s what it looks like. I had been bullish on oil for some time, but after it fell below $83, it seemed like the 70s were a possibility, and now it looks like it could go lower into the $50s.
The other piece is that copper is getting walloped after trying to break out. When copper and oil fall, it tells us that the market is worried about slowing global growth.
5-Year Inflation Breakevens yesterday fell sharply to a new cycle low, dropping to 2.07%, a level not seen since early 2021. It could be nothing, but this is something to watch because if oil keeps falling, then inflation expectations will keep falling. Falling inflation expectations aren’t just an indication of inflation falling but also a sign of growth slowing.
I guess that the decline in China Shanghai Shenzhen CSI 300 to levels not seen since before the COVID pandemic isn’t helping the matter and could even be driving some of those concerns.
Additionally, we are seeing the dollar index continue to push higher and through that 104 level, which sets up a potential test of resistance at 104.50; after that, the dollar could run to around 105.60.
1-week 50 delta S&P 500 options have seen implied
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