What's moving the markets?
Until recently, whenever tensions in the Middle East escalated, the price of oil would rise, causing interest rates to rise as well. At the same time, the dollar would strengthen and share prices would fall. These were all understandable reactions in themselves, as rising oil prices fuelled fears of stagflation. After all, higher oil prices not only drive up inflation but also slow economic growth. The latter applies least of all to the US, as the US is largely self-sufficient in energy. This is in contrast to Europe and Japan, so it was entirely logical that the dollar would strengthen as oil prices rose.
Recently, however, tensions in the Middle East have eased considerably, causing oil prices to fall sharply. This should have led to lower interest rates, a weaker dollar and rising share prices. On balance, however, the opposite happened. How is this possible?
