Commodity impact
Crude oil market impact
Crude oil moves transmit through markets in a predictable order: inflation breakevens move within hours, nominal yields follow, real yields fall (because breakevens move more than nominals), energy and materials equities lead, transport and consumer-discretionary lag negatively, and oil-producer FX (CAD, NOK) gains against importer FX (JPY, EUR). The persistence of an oil shock depends on whether it changes Fed reaction function - if so, the trade extends; if not, it fades within 5-10 sessions.
- Hour 1
- 5Y and 10Y breakevens move.
- Day 1
- Equity rotation: energy/materials up, transport/discretionary down.
- Day 1-3
- FX: CAD/NOK strengthen vs JPY/EUR.
- Day 2-5
- Fed reaction function determines persistence.
The transmission chain
Hour 1: Crude futures move. Breakevens reprice within minutes.
Hour 2-4: Nominal yields adjust. Because breakevens move more than nominals, real yields fall - supportive for gold, growth stocks, and EM.
Day 1: Equity rotation:
- Up: integrated oil, E&P, refiners, oilfield services, materials
- Down: airlines, trucking, autos, consumer discretionary
Day 2-5: Fed reaction:
- If markets price hikes → equity story flips, growth concerns dominate
- If markets price patience → inflation trade extends
Where the chain breaks
The chain breaks when growth concerns overtake inflation concerns. Signals:
- 10Y yields stop rising despite breakeven moves
- Defensives outperform energy after day 2
- Yield curve flattens instead of steepening
That is the signal that the shock is now demand-destructive, not just price-pushing.
Affected sectors and instruments
- Up: XLE, XOP, OIH, OIL, USO
- Down: XLY, IYT, JETS
- FX: CAD, NOK, RUB up; JPY, EUR, INR down
- Rates: breakevens up, real yields down
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