Oil prices surge with OPEC announcements
Oil prices rose by 6% yesterday following OPEC’s announcement that Saudi Arabia would cut its production by 5% and that other members of the OPEC+ cartel would follow suit. While the move has many political implications, experts argue that it marks a strategic change by the Saudis and their allies, rather than a tactical move to defend a weak oil price. The sustained higher oil prices are stagflationary, which could cause worry over its inflationary effects. Energy accounts for 7% of CPI and transportation services, which has few substitutes, make up a greater share of total demand, leading to more inelastic global demand. As a result, if OPEC+ wants to play for sustained higher oil prices, it has good cards.
Bitcoin sees significant gains as liquidity floods the market
Contrarily, Bitcoin has seen considerable gains this year, with a total ascent of 70%, following Silicon Valley Bank’s collapse and subsequent liquidity flooding the market. Investors have crowded into riskier assets, which explains high correlations between central bank liquidity injections and popular assets such as cryptocurrencies and Tesla stock. While liquidity injections should help Bitcoin, the narrative boost from the banking crisis has also contributed towards its surge. Experts have noted that people are fast losing confidence in banks and flocking towards Bitcoin. However, this narrative lacks credible support.
Impact on UK Economy and Markets
As Bitcoin sees significant gains and oil prices soar, it remains to be seen how these price changes will impact the UK and its economy. While it seems that the soft landing scenario presupposes that the economy will cool materially and the Fed will keep rates high, there is still a possibility that the labour market will stay too tight, causing sustained higher oil prices to become a real problem. In terms of Bitcoin’s gains, the narrative boost may attract new investors which could boost crypto’s adoption, but its reliance on the banking crisis narrative and lack of credible support could cause crypto to experience volatility in future market shifts.
Read More Here https://www.ft.com/content/535de452-e27d-4b8b-84bf-58ab4e910e86
