What Happens Next In The Global Financial Markets Depends On One Thing

It’s been a wild few days for global financial markets. 

The ruble collapsed, Russia’s central bank raised rates, oil was all over the place, all while equity markets, bond markets, and currency markets around the world were seasawing back-and-forth.

But happens next in the global economy depends on one thing: the price of oil

In a note to clients on Tuesday, Capital Economics’ John Higgins writes: “Looking ahead, the depth of Russia’s problems and the consequences for the global financial markets will obviously depend on what happens next to the price of oil.”

Higgins writes that the current price — roughly $US56 a barrel for WTI and $US60 a barrel for Brent crude — should provide some support. But Higgins adds that he, “wouldn’t be surprised if [oil prices] fell further in the near term. If that were to happen, the last fortnight of 2014 could be a turbulent one indeed.”

Earlier on Tuesday, Business Insider’s Henry Blodget talked to Mark Dow about what’s next for the global economy.

Dow also centered his outlook on what happens next with oil, saying that, “the speed factor [of oil’s price decline] is what has us most on edge. The speed of the price change is almost always more important than the level for our psychology.”

And so while the declining price of oil could have some positive impacts for US consumers who get passed cheaper gas prices as a result, both Dow and Higgins are sceptical on the net benefit of this. 

Dow and Higgins both made similar points that while there could be any number of direct causes, it is clear that something has changed in the investing landscape; the appetite for risk has significantly decreased in the last few weeks.

And what happens next has everything to do with where oil goes from here. 

WTI BrentBloomberg.comThe orange line WTI crude over the last year. The green line is Brent.

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