A Crude Awakening
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Why are oil prices expected to break the $100 barrier and what does it mean for markets?
The situation in the Middle East goes from bad to worse, and massive uncertainty now remains about how and when it is all gonna end. Meanwhile, it's looking more likely that oil prices will get over the $100 mark. They're not really that far from it now, but how much higher beyond that? And weak jobs data from the US on Friday. So what do central banks do? Weaker economies and rising inflation? Let's not mention the stagflation word again, must we? Uh so what do they do about it? It's Monday, it's the 9th of March. twenty twenty six it's the morning call from NAB. Good morning. Well, oil prices really did kick higher and faster on Friday, with that twelve percent rise in WTI and eight and a half percent for Brent, both over ninety dollars a bow now.
Brent close to ninety three dollars. The US dollar fell a little on Friday, just below ninety nine on the DXY, remembering of course it was around ninety seven before Iran all kicked off. Despite the falling US dollar, the Aussie dollar managed to rise by a third of one percent on Friday, so it's only Momentarily dipped below the 70 US cent mark. U.S.
How are central banks reacting to the double‑whammy of rising energy costs and weaker US jobs data?
equities took another hit, the Nasdaq down 1.6% on Friday, the Eurostocks 50 lost 1.1%. In the US, it was consumer discretionary and materials and IT that all lost close to 2%. And bond yields were generally higher, not so much in the United States, but a nine basis point rise in 10-year guilts in the UK and many European countries seeing five or six basis point gains in yields. Aussie ten years, we're up four basis points to four point eight four percent on Friday, up six basis points for two year yields. So Nabs Ken Compton is here today. I mean Ken you are a rates man. So two year yields in Australia at four point three seven percent. When were they last this high? Uh
Would have been would've would've been a fair while, Phil. Um a few years at least. I think if we if you're looking at the two year in particular, we we may have been uh we were still a smidgen high in the current levels back in um yeah, back at the peak of the the rate hiking cycle a couple of years ago. But um but I guess the the point being obviously that that was in a point where um ev every central bank was was im implementing fifty, even seventy five point rate hikes in a couple of cases, mostly New Zealand. But Um, you know, we were taming a a a wild inflation beast at at that point and was what was onward and upward globally, whereas obviously now um very different situation. Potentially I wouldn't say the the inflation beast is back in as broad-based a way as we were facing in that immediate post-pandemic period, but obviously we are facing a uh an o an an oil price shock and bond yields are are are extremely sensitive to that.
Yeah. But I mean there's two arguments on this, isn't there? Uh and I I you know, I've I've heard many people talking about this. It's all an overreaction 'cause it's all short term. It's all going to be over very quickly. Uh versus the no oil prices are here to stay, a hundred dollars is almost certain. We're close to it anyway. Uh and uh you know some people are saying, well it might even get up to one hundred and fifty. So that will be an inflationary m impact, which obviously would explain rising yields and we you'd expect central banks are gonna have to react to that. But um but if it's all over quickly and it comes back down again I s we can't call it a storm in a teacup, but yields are uh clearly too high if that's the case
Yeah, it's a bit hard to argue that that that point quite yet that yields are too high, and obviously even the point as to the the the the extent and uh and and depth of the conflict is clearly still up in the air. I mean nothing that's happened over the weekend has moved towards this being a a a quicker resolution, um or even or or even more more to the point a a quick resolution at all. Obviously we're now seeing um Israel and Iran trade attacks over Civilian infrastructure now, which is uh particularly the head head headlines this morning out of um well st stories across the weekend of of Israel attacks on on oil infrastructure around around Tehran.
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