Oil Drop: Walmart Sparks Disinflation Speculation.

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On Friday, Asia contemplates the aftermath of a turbulent week across bonds, equities, and commodities. The oil market experienced notable volatility, with prices dropping nearly 5% overnight, driven by concerns over oversupply and decreasing demand.


Speculation played a role as algorithms, commodity trading advisors (CTAs), and trend-following funds initiated selling when Brent fell below $80 a barrel. The rapid decline from $80.70 to $78.40 occurred within a single hour of trade, and the current price hovers around $77.60, finding support at $76.60.


Despite conflicts in Ukraine and the Middle East, the current oil price is far from the September peak of $97.69. Anticipation surrounds OPEC+’s response, expected to be addressed in their upcoming meeting on Nov. 26.


The decline in oil prices signals a potential further decrease in global headline inflation, positively impacting U.S. consumers whose confidence is closely tied to gas prices.


Shifting to disinflation, Walmart executives noted on Thursday that prices of general merchandise goods, including apparel and home goods, have decreased by 3% to 6%. The company plans additional cuts for the holiday season, although concerns about margin compression led to an 8% decrease in its share price.


Interestingly, analysts at Westpac observe a post-pandemic pattern in U.S. economic data, where strength is evident mid-year and through Q3, only to soften towards the year’s end. If this trend persists, the bond rally is likely to continue.

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