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Enough cool heads are pulling back from the brink - John Authers - Bloomberg

 

Beyond the duration of the shock, we also need to monitor the impact on central banks and on the macroeconomy. Societe Generale’s Manish Kabra lays out the criteria as follows:

An exogenous shock lasts beyond a week, but oil spikes usually peak in three months. That’s the timeline and only two things matter: 1) shock duration and 2) the Fed’s reaction function.

Alternatively, Henry Allen of Deutsche Bank suggests that for a risk-off bear market to follow an oil shock, three conditions need to be met:

1. Large and sustained oil price spike: An oil price spike of at least +50-100% that is sustained over several months.
2. Hawkish policy response: The shock forces a sharp, hawkish pivot from central banks to fight the resulting inflation (e.g. 1979, 2022).
3. Broader macro damage: The shock is big enough to tip an already-slowing economy into recession.

 Iran Oil Panic: Enough Cool Heads Are Pulling Back From the Brink - Bloomberg

 

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