Oftentimes, when the financial markets are hit by bad news, policymakers scramble to calm them. That happened Monday in response to Sunday’s soaring oil prices, observes Ed Yardeni, editor of Yardeni QuickTakes.
To address the market turmoil following the escalation of the conflict in the Middle East, the G7 Finance Ministers and Central Bank Governors held an emergency virtual meeting. The group's primary strategy was to signal a “managed urgency” to prevent a sustained global energy shock.
Source: Yardeni Research
They issued a joint communiqué stating they “stand ready to take necessary measures,” specifically mentioning a coordinated release of strategic petroleum reserves (SPR). Reports suggest the group is weighing a release of 300 million to 400 million barrels—a move that would dwarf the 240-million-barrel release following the 2022 invasion of Ukraine.
Brent and WTI crude oil, which had spiked toward $120 overnight, retreated back toward the $100 mark following the statement. The intraday easing in energy costs helped stocks recover from their worst pre-market levels. Then Brent and WTI slipped further to about $89.
Meanwhile, according to Polymarkets.com, the odds of a recession this year jumped to a three-month high of 34% on Friday from 21% on Wednesday, Feb. 25, just before the war started. Thanks to the rapid response by the G7 ministers and the US President, the odds of a recession then fell to 28%.
Bottom line: We feel better than we did over the weekend, sort of. We would feel much better (and more bullish) if we saw some ships sail through the Strait of Hormuz without getting attacked by Iranian suicide drones.
