News this past week:
- Macron becomes youngest ever elected French President
- Strong April jobs report points to robust US labour market
- Eurozone economy grows 0.5% in first quarter
- Greece agrees bailout terms with creditors
- Volatile week for commodity prices
James Klempster, CFA of Momentum Global Investment Management shares his view:
Crude oil experienced some substantial moves last week, with an intraday swing on Friday of over 6% for West Texas Intermediate crude. Despite these sorts of moves, crude remains about 13% below its mid-April highs and appears to be stuck in a rut – the price of crude has not moved meaningfully away from $50 per barrel since the middle of 2016. Last year the Organisation of Petroleum Exporting Countries (OPEC) agreed a production cut to provide support for prices but today’s oil price is only a few dollars above the level when the cut was announced. Oil was at its weakest at the start of last year and the price almost doubled through the course of the year. A move of that magnitude is inflationary because of the role oil plays as an input to production as well as being a commodity that is directly used by consumers in various energy forms. A reasonable component of the past twelve months’ headline inflation has been a function of energy costs and there is also a feed through effect from the increases in these costs into core inflationary data. Much has been made of the rise in inflation’s over the past six months, but aside from a further jump in oil or other important input costs it is difficult to see where it will come from presently.