The new equity market barometer?

Movements in the oil price is increasingly dictating equity market direction. This strong  correlation between the  daily directional moves in equity markets to those of oil prices has been in place since last year  November and continues to be until today. This week started on a poor footing as the world’s  largest oil suppliers couldn’t reach a compromise over production freezes given Iran’s resistance  to do so. Iran has only recently started to ramp up production following the sanctions that were  imposed on it and is not willing to stop at such low levels. But sentiment remained upbeat in the  oil market due to large scale strikes in Kuwait that shut down production and further evidence that  new supply in the US is under pressure. The oil price pushed to its highest level this year and so  did US equities, but mixed company earnings releases on Thursday caused the tide to turn and the  S&P 500 Index came off a 4 month high. The US earnings season is now well under way and with the earnings  expectation hurdle set low, most companies have so far managed to beat analysts’ forecasts.

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