Cheap Commodities Will Drive U.S. Equities Higher, SocGen SaysLaura Clarke
Falling prices for raw materials and energy will boost equities in developed markets and restrain inflation, according to Societe Generale SA.
Gasoline prices falling 80 cents per gallon since June will give U.S. consumers $100 billion more in purchasing power, and benefit the Standard & Poor’s 500 Index, the bank said in a report today. Economic growth in the U.S. and Japan, the third-biggest importer of oil, will benefit the most from less expensive energy costs, Societe Generale said.
“Low commodity prices are positive for equity markets,” wrote Patrick Legland and Daniel Fermon of the Paris-based bank. “Developed markets and consumer-related sectors should benefit from lower oil prices.”
Commodities fell to a five-year low today as oil sank on prospects for a glut and data from China confirmed a slowdown in the world’s top user of fuels and metals. Gold retreated earlier today before rebounding after Swiss voters rejected a move to force its central bank to buy more of the precious metal.
Weaker economic growth in Europe and China is a major reason why commodity prices have tumbled in the past three years, according to Societe Generale. China is the top consumer of many resources, consuming about 40 percent of all copper, which has fallen almost 15 percent this year.
The bank said it is cautious on recommending emerging-market stocks because the equities tend to be correlated with moves in commodities. In the European Union, more reforms and action by the ECB is needed to support share prices.
Cheaper commodities will also reduce inflation and add pressure on the ECB, Societe Generale said. ECB President Mario Draghi said last month that he would take measures to stoke inflation “as fast as possible.”