A new note from Morgan Stanley analysts led by Chief Cross-Asset Strategist Andrew Sheets demonstrates the degree to which the fortunes of the energy sector are currently driving stocks and bonds, but emphasizes the correlation is overdone.
Stripping out the impact of the energy sector reveals a far different picture for industrial production, corporate earnings, and inflation around the world.
"Oil’s role in driving hour-by-hour market moves is overstated. But its place in the broader macro debate remains central," write the analysts.
"Energy companies are no longer leading equity or credit indices higher or lower. In our view, oil and markets are moving together because they are driven by similar things: concerns over growth, a lack of risk appetite, [and] a relentlessly strong trade-weighted dollar."
"Oil’s role in driving hour-by-hour market moves is overstated. But its place in the broader macro debate remains central," write the analysts.
"Energy companies are no longer leading equity or credit indices higher or lower. In our view, oil and markets are moving together because they are driven by similar things: concerns over growth, a lack of risk appetite, [and] a relentlessly strong trade-weighted dollar."
U.S. industrial production has slipped in recent months, with some economists interpreting the decline as a sign of impending recession. Removing the effect of energy, however, and the fall in industrial production disappears faster than an East Texas jackrabbit.
"Lower oil prices have clearly not been the economic boon many had previously assumed," notes Morgan Stanley. "But it is also important to recognize that many 'broad' measures of economic health, such as U.S. industrial production, can be significantly affected by weakness in oil."
"Lower oil prices have clearly not been the economic boon many had previously assumed," notes Morgan Stanley. "But it is also important to recognize that many 'broad' measures of economic health, such as U.S. industrial production, can be significantly affected by weakness in oil."
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