High Gas Prices Causing European Market Downturn

It takes a while, but when the first domino falls here, it takes a while to reach the other side of the Atlantic. Things for Europe are starting to look more grim each passing day.

Yet the ECB wants to continue to raise intrest rates. Its only going to make matters worse than they already are.

I totally agree. In an effort to strengthen its Euro against the dollar they have kept interest rates high to fend off inflation. The problem is this strategy only works for so long before it starts taking a nagative effect.

Europe is slowly already starting to see a housing market downturn. They are where we were about 2 1/2 years ago.

The Euro is too strong at the moment, but inflation is making it difficult for the ECB to even think about lowering rates.

The ECB is in the same boat we are (and were). Eventually you need to bite the bullet and lower rates to try and spur growth, but then you risk our current situation: rising prices and slowing growth (stagflation). Oil is throwing everyone an economic curveball. If I were Trichet and whoever else is in charge over there, I would hop to NOW, not later. Lower rates now to keep growth strong and deal with inflation when the storm has passed...because of oil, prices are going to rise anyway, why risk staglation?

I'm a euro bear over the next 12 months as long as these oil prices sustain. Eventually they have to cut rates and the yield spread will narrow and the dollar will strengthen. I think eventually oil is headed for a big fall, classic boom and bust, but it will take a while to bring new supply to market. I don't see oil falling much in the next 6 mos. Can Europe hold out that long? I have a tough time believing they can.

We're going to bring everyone down with us eventually. Even the mighty China can't withstand $140 oil much longer, even with all their subsidies and price caps, etc.

NA Runner.

WOW. Bravo. It really is wonderful and exciting to see someone else who really knows what they are talking about here on this site. I totally agree with you. Btw. China has already lowered oil subsidies (a surpirse to many who believed they would at least hold out at least until the end of the Olympics) Who knows what will happen after.

It sounds to me that in the long term that this might be good for the overall world economy. High energy prices seem to be sending the world economy (with the exception of some middle eastern countries) into a tailspin. Which I think will only help to bring prices down in the long run.

T

Thats right. But things will get a lot worse until they get better. Im eager for them to get worse, that way the better becomes forseeably around the corner.

I could be very wrong, but is it becoming the opposite, gasoline prices going down and diesel going up?

So the politicians claim it’s the high demand that's raising the oil prices. Ok, so does that mean people are caring less for the prices going up and still demanding oil? Hmmm, including myself, aren't other people cutting on their vehicle types, driving distances, etc...? So that means the demand is affected by the rising prices, so how come the prices keep going up then? What’s the real reason people?

The reason is you don't matter. China matters, developing nations matter. In China, the government puts price caps on oil and subsidizes some of the cost in order to keep costs down for citizens, so their consumption keeps growing and growing and fueling prices. Remember, the market is an anticipatory mechanism, so right now the market is anticipating that developing countries will continue to consumer oil faster than they can produce it. If that proves to be false, then prices will fall...hard IMO.

Bottom line, though, we don't really matter in terms of marginal demand growth and that's the major factor being priced into the markets right now.