Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Tuesday, October 14, 2014
Ukraine / Russia situation ( October 14 , 2014 ) - As West not successful in persuading russia from backing off ( Syria , Iran , Ukraine ) , brent being crushed to try to break Russian will ? Meanwhile in Kiev. rumbling beginning .......
Yesterday we lamented the ridiculously oversold levels in West Texas Intermediate, which as BofA calculated, has hit "oversold" levels for only the third time in six years. We assumed that this could be the basis for a short-term rebound. We were wrong, because we clearly had no idea just how determined the Saudis are to crush Putin into the ground courtesy of plunging oil prices.
As of moments ago, WTI has tumbled nearly $4, some 5%, to just over $81...
... which just goes to show how idiotic any reliance on charts is in a centrally-planned world, in which commodities are nothing but political weapons. Bottom line: based on its weekly RSI chart, WTI has just hit the most oversold levels since Lehman.
But to our rather great dismay, what is gong on with Brent turned out to be far worse, and as the weekly RSI indicator shows the selloff in Brent is now the worst, well, ever!
But, And as Goldman Sachs notes, despite the great efforts of the Sauds and Obamas to bring down the House Of Putin, Russian bond and equity prices, and the fiscal and external balances, are now less vulnerable to oil price shocks:
we conclude that the recent decline in oil prices is unlikely to have been the main factor driving Russian asset prices given that:
(i) Russian assets have significantly underperformed those of other commodity-linked economies;
(ii) high-frequency correlations between Russian asset prices and the oil price had fallen to close to zero in the recent past;
(iii) with the Ruble now being flexible and the correlation between capital outflows and the oil price being highly positive, the oil price should matter less for the real economy than it did in the past.
With the exchange rate being flexible, the Russian authorities will be able to use monetary policy in particular but fiscal policy as well to counteract the impact of the terms of trade on growth. This should lower the correlation between bond prices and equity prices in times of sharp moves of oil prices.