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Big drop in oil prices to boost consumption – Danske

FXStreet (Barcelona) - The Danske Bank Research team notes that the sharp decline in oil prices over the past months is providing a nice Christmas present for global consumer, not least in the US where gasoline prices are now the lowest since 2010 after posting the sharpest six-month decline since the financial crisis.

Key Quotes

“The lower energy bill should ensure that the current slowdown in US growth will only be moderate and temporary. Although we still see a risk of a correction lower in ISM in the short term, the US stock market will be increasingly willing to look through this as fundamentals for growth in 2015 are looking more solid now.”

“The decline in oil prices is also providing a further boost to European consumers. The period of low euro inflation will be prolonged but as long as this is driven by lower commodity prices, the low inflation is positive for euro area growth.”

“As in the US, it provides a boost to real income growth and it is the main reason why private consumption has actually held up well this year despite the slowdown in the corporate sector. The low inflation also makes it more likely that the ECB will find it necessary to add stimuli early next year to avoid inflation expectations declining further or inflation getting stuck in a low equilibrium.”

“Overall, the quite sharp decline in oil prices is a positive supply shock to the developed economies and strengthens the case for a moderate recovery during H1 15 with rising growth momentum in both the US and the euro area.”

“A Chinese rate cut today is also adding to the picture of accommodating central banks. These developments are providing renewed support for risk assets and strengthen the case for outperformance of risk assets on a three-six month horizon.”

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