DEAD CAT BOUNCE: Crude Oil Has Broken Lower But It's Good News For The Economy

Getty/Sean Gallup

It’s not a pretty thought, but even a dead cat will bounce when dropped from a height.

“Dead cat bounce” is what traders call it when a market rally is sharply reversed and it’s what happened overnight in the oil markets which reversed Friday’s big rally.

The action came after the Saudi oil minister kept up the pressure on his competitors and the US shale industry by saying he didn’t care if prices crashed to $20 a barrel.

It sent Nymex Crude down 3.19% to $55.31 a barrel and close to breaking what has become a tentative recovery off the recent lows in the $53 a barrel range.

While any further oil crash may not be good for net energy exporters, it is a boon for global growth in the year and years ahead as it effectively gives consumers in every country impacted more money in their pocket – just like a tax cut.

Indeed, overnight the IMF’s chief economist Olivier Blanchard said of the big fall in oil:

“Overall, we see this as a shot in the arm for the global economy.”

RBA Governor Stevens said something similar recently.

So while the oil crash is bad for some and may weigh on Australian stocks a little today (iron ore was also down), it is the best thing for improving global consumption and economic activity in years.

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