Ongoing fall in oil is starting to affect risk assets – RBS

FXStreet (Barcelona) - John Briggs of RBS notes that the ongoing fall in oil is clearly affecting the risk assets with high yield debt markets suffering since October, and currencies – Yen and Swiss Franc gaining on equity and energy market declines.

Key Quotes

“Last week, particularly the trading sessions at the end of the week, were very interesting in that the oil price decline shifted from being a "good for growth and thus longer term inflation" versus "bad for inflation and tricky for the Fed" debate to a simple risk-off catalyst. At RBS we have had an ongoing belief that markets will not be able to transition from years of US quantitative easing to a rate hike cycle without any sort of hiccup. A 40% decline in crude oil over 3 months, however, was admittedly not at the top of the list.”

“The ongoing fall is clearly starting to affect risk assets and all that goes along with them. High yield debt markets have been suffering since October, but one can tell how sentiment is shifting to broader markets such as global equities and currencies. On Friday, even FX had a tone of classic risk-off, with the yen and Swiss franc strengthening (a bit) on equity market and energy market declines. The overnight action this morning is no different – an oil rally causing US stocks to bounce and rates to retreat.”