The second-round effects of pricier oil

Oil prices will remain volatile as long as the outcome of the Middle East conflict is unclear, says Dr Jacky Tang, the Private Bank’s emerging markets CIO. “The best way to frame oil right now is that we are in a market dominated by headlines, but not by conviction”, Jacky says. “Our sense is that oil is still carrying a meaningful geopolitical premium, and the market is not prepared to take that premium out unless they see something more than a proposal on paper.”

The fallout from the conflict will also likely extend to assets beyond energy. “For equities, the key message is that lower valuations alone do not guarantee safety”, Jacky says, noting that there could be a divergence in performance between companies that can pass on price increases and those that are less able.

In the week ahead, Jacky says that data on the mood amongst consumers will be important to watch. “I would watch macro releases mainly for signs that the geopolitical shock is starting to leak into consumer behaviour.”

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