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Israel's vow to retaliate against Iran for its missile attack is concentrating minds on oil markets. Crude prices are rising on concerns Iran's energy infrastructure will be in Israel's crosshairs.
OPEC has enough spare capacity to compensate for a full loss of Iranian supply, but here's the rub – much of that capacity is in the Gulf region and potentially vulnerable should the conflict escalate further.
Abundant supply and soft demand from key consumer China is keeping the fear premium broadly at bay. We dug into oil demand in last week's episode of Reuters Econ World. Listen here.
Crude prices have traded in a narrow range of $70-90 per barrel over the past few years despite the war between Russia and Ukraine and conflict in the Middle East.
But if energy facilities become targets in a broader conflict that could drive oil much higher, a major risk for the United States with elections just a month away.
Speaking of those elections, we dive into what the polls could mean for U.S. taxpayers and the economy more broadly in this week's episode of Econ World. Listen here.
Sticking with the U.S., the biggest strike by U.S. dock workers in nearly half a century is adding to uncertainty about its economic outlook. The walkout on ports on the East and Gulf coasts is choking off half the country's ocean shipping.
Economists say the port closures will not initially raise consumer prices as companies accelerated shipments in recent months for key goods. But a prolonged stoppage will eventually filter through, with food prices likely to react first.
In an interview with Reuters, Richmond Federal Reserve President Thomas Barkin noted the strike, and the wage increases of 50% or more being discussed as possibly needed to settle it, did not seem like evidence of collapsing inflation or a weak economy.
Barkin said the Fed's inflation fight may take longer than expected and limit how far interest rates can be cut.
A strong private payrolls report this week added to evidence of a healthy U.S. labor market, pushing up Treasury yields and tamping down expectations for another large interest rate cut next month. Markets imply a 35% chance the Fed will cut interest rates by 50 basis points in November, compared with almost 60% last week.
It's a different story on this side of the pond. Markets are ramping up bets that the European Central Bank will cut rates at each of its meetings in October and December after a top policy hawk Isabel Schnabel sounded more sanguine about inflation coming under control.
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Carmel
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