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Potential macroeconomic effects from oil futures prices - Wells Fargo

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 27, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - Analysts from Wells Fargo estimated the potential effect of current futures market oil prices on macroeconomic variables. They find an uptick for growth in real GDP and consumption, but slower growth in other areas.

    Key Quotes:

    “The largest effect (in absolute terms) is estimated for BFI (business fixed investment), a decline of around 0.5 percentage points for 2017 and an average decline of 0.38 percentage points for 2016-2017.”

    Personal consumption and GDP growth rates show upticks, where consumption growth (an average increase of 0.14 percentage points) benefits more than total GDP growth (just an average increase of 0.02 percentage points). The estimated average decline in the CPI year-over-year percent change is 0.23 percentage points. The average 10-year Treasury yield is lower by 10 basis points.”

    “For decision makers, there are several key takeaways from our econometric analysis. First, if futures market oil prices turn out to be correct, then it may take inflation even longer to get to the FOMC’s target of 2 percent. (…) Second, a lower growth rate for BFI may suggest that the energy-related sectors may bring down overall BFI growth.”

    “Third, in the unconditional forecasting step, our model estimated higher Brent prices than those of the ICE future Brent prices by an average of $11.71. (…) This may indicate that the macroeconomic fundamentals, on average, are suggesting higher Brent prices for the 2016-2017 period compared to those of the futures market.”
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