Inflation Or Deflation?
Posted in CRB Total Return Index (CRB) on May 24th, 2010 by admin – Be the first to commentBy Jim Donnelly, Olson Global Markets
A sharp three-week price decline in crude oil combined with setback in the value of copper (when measured in U.S. dollars) has the Reuters/Jefferies CRB Total Return Index turning lower. A recent surge in the value of the U.S. dollar has clearly been a large part of this story. Nevertheless, the direction of crude oil prices is being viewed by some as a proxy for the expectation of a slowdown in global economic growth.
Another aspect to the dynamic is that of inventory levels. With the Cushing Oklahoma oil storage facility this week reaching 37.9 million barrels and quickly nearing its peak operable capacity of about 41mm-42mm barrels, the front contract sank on Thursday in front of its May settlement. This facet of the equation is a reminder that the forces of supply and demand also have to be reckoned with.
In any event, the CRB index is now approaching a test of key “cross” trend line support now sitting at 245. Interestingly, the current technical setup for the CRB index does not yet reflect an oversold condition. As a result, the worry is that if the 245 support level should give way to selling pressures, a move down to the 205 level might be possible. A decline of this nature, if it occurred, would no doubt have a negative impact of equity prices, and at the same time force intermediate-to-long-term U.S. treasury yields to move lower still.
If, on the other hand, the 245 area can hold as support, an easing of recent bearish equity influences might occur. Unfortunately, the current technical set-up does not yet favor such relief.