@atomic79 Yes, while it sounds conspiratorial (and I'm not a conspiracy theorist, until the theory is shown to be fact), I think there may well be a conscious effort to create inflation, specifically, in energy and also food (on which people spend most of their non-discretionary income). There's clearly no sound basis in these prices (and iron ore also, now the subject of frenzied base metal commodities trading in China, given the collapse of the Shanghai Comp. Index: they've found a new casino.). There is also evidence of unprecedented trading levels in boring old soy beans on CME (i.e. food, despite a huge surplus).
Now these two don't appear in US "core" inflation figures (used by the FOMC - i.e. they exclude the "volatile" food and energy components), but do appear in the "headline" CPI number.
Their preferred index is the PCE (personal consumption expenditures). Interestingly, the "core" PCE also excludes these two sectors.
The Fed's own words."Although food and energy make up an important part of the budget for most households--and policymakers ultimately seek to stabilize overall consumer prices--core inflation measures that leave out items with volatile prices can be useful in assessing inflation trends."
https://www.federalreserve.gov/faqs/economy_14419.htm
If their dual mandate of price stability and full employment is fulfilled they can "normalize" rates. Absent inflation, they can't (they claim have full employment).
So why then might they want to create inflation (if that's what they are doing) if they exclude these sectors? Confusing.
It's a funny game. For most of last year, equities were dominated by fear of the Fed hiking, and so "bad new" was "good news": bad news = lesser chance of rate hike = good for stocks (aka "Alice in Wonderland" logic. Still, it is what it is).
All news was judged exclusively through the lens of the impact on the Fed. Later in 2015, things changed, the Fed became irrelevant, and oil took over...as oil went, so did equities. We seem to have returned back to the dominance of the Fed, once again.
But if my suggestion above is correct, there is a nexus. Boost oil and food prices, create target inflation of 2%, and they have an environment conducive to rates "normalization" (their word).
What I don't get, is why boost these prices if they're not include in the inflation figures? It doesn't help them, unless they move the goalposts and include these sectors (which they won't).
So the theory seems to collapse. But there's really no other explanation for June Crude Futures to be at US$ 46, with collapsed Doha talks, Iran pumping furiously, and even the "government" of Eastern Libya now getting into the game! I don't any increase in global demand.
OTOH, rising oil seems to give comfort to equities, regardless of its inclusion in the PCE.
Still, I agree, these prices have no basis in reality, and this is another bubble waiting to burst. From a low of $27 (Week commencing 8 Feb, 2016) to $46 (current), 77%, as seen in this Chart below.
On the other hand (three hands now!
), the trend is your friend, trade what you see, not what you think, just be attentive to the likelihood of a steep fall in Oil prices, at a time few can predict (like all tops and bottoms)
And I know atomic is attentive.
CME WTI Crude- June - WEEKLY:
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