MUFG’s Derek Halpenny underlines that Brent Oil falling below USD 80 and a roughly 30% drop in crude over a month have significantly reduced perceived near-term inflation risks from energy. This shift is seen as a “game-changer” for assessing broader inflation, potentially allowing the Fed some leeway even as it maintains a generally hawkish stance on policy and projections.

Sharp crude drop eases inflation risk

"As a result, Brent crude oil fell below the $80pbl level yesterday for the first time since 3rd March."

"In the space of one month, crude oil has declined from an intra-day high (on 18th May) by 30%."

"That’s a game-changer in terms of assessing near-term risk to broader inflation from a sustained energy price shock."

"In the period since the crude oil price has dropped nearly 30%, the 2-year UST bond yield is close to unchanged so there is clearly a reluctance amongst investors to take a bullish view on rates with uncertainty over the outcome this evening an obvious deterrent."

"Investors also likely see the energy price drop as only a counter to the continued surge in equities and the three months of stronger than expected NFP reports."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)