Global Markets: Oil-Inflation-Market Correlationship…Where?

``Don't try to buy at the bottom and sell at the top. It can't be done except by liars.” -- Bernard M. Baruch (1870-1965), Financer, Speculator Statesman and Presidential Adviser

And they said the Phisix’s fate belonged to oil prices.

The prevailing perspective: high oil and food prices (or consumer goods inflation) = low stocks prices. Alternatively, lower oil and food prices should translate to high stock prices. It’s as simple as that.

Well, world oil prices got whacked this week, and along with it the broader commodity sector. Instead of a shindig, the Phisix got thrashed- down by 2%. We were not alone though. Except for India and Vietnam, virtually all of the Asian markets got crushed too. So misery loves company.

It’s a mix picture elsewhere. US and Latin American stocks were in a bacchanalia while most of Europe was mixed. Middle East and African stocks were mostly lower.

Figure 1: stockcharts.com: Oil and Stocks

Figure 1 shows of how world markets reacted to falling oil prices. While major benchmarks were up (center window) along with many emerging markets (lowest pane), the broadbased weakness in Asia was pronounced (FSEAX-Fidelity Southeast Asia- pane below center window and Dow Jones Asia-pane below FSEAX).

So the single dimension “cause-and-effect” deduction does not square up with facts. What is popular doesn’t mean it is real.