The decline in oil over the past 18 months has been a key cause of concern for markets due to the deflationary pressures that this presents. The stabilization of oil prices since September and lack of negative economic effects had led to the view that the economy can handle the lower levels, however the lows breaking last week changes this.
If this risk becomes realized, then monetary policy will remain highly accommodate for longer. This means that the drop in gold we expected to see on the first rate hike will likely be lessened, but the effect of the central bank put will be maintained to stop equities selling off heavily and keep volatility contained.
