Many are now asking when – not if – the oil price will reach the $30 benchmark. A sustained period of very low prices will place increasing strain on the Saudi economy, potentially worsening the internal security situation and contributing to greater tension with its neighbours. Western economies are enjoying lower energy costs, but the medium-term price could be greater instability in the Middle East.
It’s against a backdrop of falling commodity prices, uncertainty over China, and worries about emerging markets that the Fed is expected to increase rates this week. Janet Yellen’s confidence in the US recovery is not universally shared, however. Although the outward signs (employment figures and wage growth) are good, there are concerns about the US manufacturing sector and consumer spending.
Yellen and Stanley Fischer will be acutely aware that the US economy does not exist in isolation. Global markets are already jittery. Emerging nations fear capital outflows and crippling interest payments on dollar debt. There is a body of opinion ready to risk an outside bet that the FOMC will surprise everybody and further delay a rate hike. But any hesitation would be highly courageous, given the hype surrounding the decision.
The most likely scenario is that Yellen will make small incremental rises in an attempt to minimise volatility and accustom the markets to higher rates in the short term. She has few historical examples to draw on and is about to tread on largely unknown ground. Even the most apparently logical monetary strategies can become text book examples of how the markets and global events combine to derail policy.
ETORO INVESTMENT ANALYST: MATI GREENSPAN
eToro traders are treating predictions about crude prices with cautious scepticism and are remaining long on oil.
Sentiment regarding divergence between the US and Eurozone economies remains unchanged, with investors still holding short on US indices and going long on the major EU indices.
A lot of traders are watching the markets closely in anticipation of Wednesday’s Federal Reserve announcement.