The plunging oil price - why and what it means
While worries may persist, at some point in the year ahead, a lower oil price will likely boost the economic growth of developed countries and benefit energy-importing nations in Asia
WHILE our view on the financial market turmoil has been covered in the past, central banks are now sounding more dovish. This started with the European Central Bank, which is now expected to ease at its March meeting, and is also evident from the Fed, which last night was less positive on the growth outlook and indicated it was monitoring recent economic and financial developments.
The probability of a March Fed hike is now just 20 per cent and rather than four Fed rate hikes this year I see only one or none. The Reserve Bank of New Zealand has also turned more dovish and I expect the Reserve Bank of Australia to do the same.
The one big surprise in the ongoing turmoil in financial markets is the role played by oil. Past experience tells us surging oil prices are bad and plunging oil prices are good. But that has not been the experience lately. It seems there is a positive correlation between oil prices and share markets ("shares down on global growth worries as oil plunges" with occasional "shares up as oil rallies as growth fears ease"). So what's going on?
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