Lower oil prices Tuesday reversed nearly all of the market’s gains on Monday as an Iranian agreement including sanctions on oil production depressed oil prices and the broader market. The sanctions that would allow Iran to increase its production of oil is drawing near the end of its waiting period. As the sanctions are lifted, Iran has more power to increase its oil production, which would almost certainly push oil price levels even lower.
Lower oil prices and the price stability conundrum are the greatest risks for the U.S. economy in the current environment and are the main factors that could lead to continued volatility in the U.S. equity market. On Wednesday the U.S. equity market opened flat as the S&P gained 0.19% through mid-morning. The Dow Jones Industrial Average is down 0.05% through mid-morning led by further losses from United Technologies Corporation (UTX, Financial). It appears that price stability risks and geopolitical concerns are in fact going to remain in the spotlight over the next few weeks, despite the Federal Open Market Committee’s positive outlook on labor market productivity and short-term domestic production.
In a CNBC interview this week, Dominic Rossi of Fidelity Worldwide Investment discussed global market price stability and even the risk of deflation, the one main risk that could potentially keep the federal funds rate near zero for an extended period of time.
