Oil Prices Emerge As A Key Driver Of Markets, But Less So OnThe Rise: CS

Oil has been the critical variable driving risk assets, as over the past 18 months, inflation expectations, cyclicals versus defensives, and non-energy high-yield credit spreads have been closely correlated with oil prices, notes Credit Suisse analysts. Andrew Garthwaite and team express concern in their Feb. 11, 2016 Global Equity Research note titled “Oil: why it remains one of the key drivers of risk and how to play it” that on a two- to three-year view, oil doesn’t move above $45-50pb.

Positive correlation between S&P 500 and oil when oil prices fall

Garthwaite and team point out that during the past 18 months, a significant number of macro risk trades has been closely correlated with oil prices. They note that as oil prices dropped, U.S. high-yield...