Charts of the Week: Cheaper Energy, Dearer Money
Summary
- Brent crude prices fell from over $135 per barrel in early October to around $91 due to growing hopes for a Middle East settlement.
- The ten-year US Treasury yield dropped from 5.31% in early October to 4.84% at the start of November before rising back toward 5% on strong US core inflation data.
- Global economic momentum has softened while remaining resilient, with the sentix index falling for three consecutive months in November and the Citigroup global growth surprise index easing from summer highs.
- China's export growth is increasingly driven by technology sectors like semiconductors & computing equipment rather than traditional manufactured goods.
- US corporate profit recovery is concentrated in finance & information sectors, making the expansion vulnerable to elevated borrowing costs.
- Global commercial oil inventories remain above pre-pandemic norms despite OPEC production cuts, providing a buffer that limits price pressure.
- Blue Chip forecasters have raised 2027 short-term interest rate projections more than inflation expectations across major economies including the US, Japan, & Australia.
- Recent short-term core inflation measures in the US & Japan show prices rising faster than annual figures imply, suggesting disinflation may be more difficult than anticipated.
The world economy faces an unusual combination: cheaper energy but dearer money. Brent crude has fallen from more than $135 a barrel in early October to around $91, as hopes of a negotiated settlement in the Middle East have grown. For energy importers, this offers welcome relief from cost pressures and a boost to real incomes. Bond markets initially responded in kind: the ten-year US Treasury yield fell from 5.31 per cent in early October to 4.84 per cent at the start of November. But that relief has proved short-lived. Stronger-than-expected US core inflation has pushed the yield back towards 5 per cent and reduced expectations of monetary easing. This tension runs through this week's charts. Global economic momentum has softened, though activity remains resilient (chart 1). Beneath the surface, however, the sources of growth have become increasingly concentrated. China's export expansion is being driven by technology (chart 2), while the US profits recovery rests heavily on finance and information (chart 3). Both trends underline the growing importance of technology and capital markets to the global outlook. Meanwhile, oil inventories have remained relatively comfortable despite severe supply disruptions, suggesting that cheaper energy may offer more lasting relief (chart 4). But the monetary outlook is less encouraging. Blue Chip forecasters have raised their interest-rate projections by more than their inflation expectations (chart 5) in recent months, while recent core inflation readings suggest that underlying price pressures remain stubborn (chart 6). The result is an uneasy combination: improving supply conditions should support growth, but persistently high borrowing costs threaten an expansion increasingly dependent on technology investment. Whether cheaper energy can outweigh dearer money is becoming a key question. <iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/1m9Gq3Gy1LS7NsUX5i7M3Q?utm_source=generator&si=6c99022474cd4db6" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>