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How Oil's Decline Reverses Stagflation and Reshapes Rate Bets
Brent crude's decline from $120 to $73 reverses the stagflationary impulse, benefiting the eurozone and reshaping Fed rate bets. UK politics, ECB meeting, and US jobs data are next catalysts.
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Brent crude dropped from $120 at the height of the war to $73 this week, driven by the US-Iran deal. The peace is fragile, and uncertainty over the Strait of Hormuz persists. For now, the decline reverses the stagflationary impulse that had weighed on the global economy, lifting growth and lowering inflation expectations in the months ahead, the weekly note said.
The eurozone benefits more than the US, just as it was hit harder by the original oil shock. That shift already showed up in equity markets. Euro stocks outperformed US stocks over the week, the note pointed out.
US tech stocks sold off roughly 5% on renewed AI jitters. The note called that another bump in the road, not the start of a larger move. Investment plans in the US remain significant, and the consumer engine still runs, now with a tailwind from cheaper oil.
US manufacturing PMI rose from 55.1 to 55.7, the highest reading since 2022, beating expectations. The eurozone composite PMI climbed from 48.5 to 49.5, helped by a recovery in services. The German Ifo expectations index ticked up to 84.1 from 83.9. The improvement should continue as the oil shock fades, the note said.