James Helliwell traces how crude oil prices drive inflation, higher interest rates, and ripple effects across stocks. FedEx hits all-time highs on war-related cargo demand, while Freeport-McMoRan and lithium producers Albemarle and SQM surge on commodity strength. Consumer stocks like Lennar, Winnebago, and American Airlines weaken as fuel costs and reduced spending bite.
I have 10 minutes before I've got to board that plane right there. It got me thinking about the knock-on effects of crude oil. Some of the names that I had on my so-called recession watchlist back in 2022, so many of these, whilst I haven't updated since, are the most economically sensitive stocks out there. Mining, semiconductors, retail, and then logistics and transportation. But there's some interesting moves in here. Not all of them are heading in the direction that you might expect. FedEx, for example, at an all-time high. I'm amazed to see how they seemingly are not impacted by a spike in oil prices. That's a strange one. And presumably a drop-off in consumer demand as well. Like, is there in some way a bull case of FedEx related to conflict and war? Unless the closure of the Strait of Hormuz, the shipping lane, is meaning that we're going to have to send things by air cargo. Maybe that's the trade. I have no idea. I haven't heard that one. Some more of the names on my watchlist. Freeport-McMoRan, you can see that this basically trades within a range. It doesn't surprise me to see it at an all-time high because whilst there is the risk of a slowdown and perhaps a global recession as a result of the spike in energy prices, we are very much in an environment of secular inflation. The AI infrastructure theme, the demand for things like copper that will likely benefit the mining sector, and Freeport's front and center. Am I getting the call now? No, not quite. If that starts rolling off the tarmac, then we've got a problem. The next one on my watchlist, semiconductors. That's definitely not a surprise. ASML at all-time highs. And once again, it's a story of tech powering the overall index higher. That's the NASDAQ. The world's going to shit for the consumer and for everybody else. But if you're a tech company, an AI infrastructure beneficiary, you know, you're in your own world, it seems. Let's take a look at what else is on the watchlist. MercadoLibre, coincidentally, as I'm in the country, it's an emerging markets consumer proxy. Oil prices are putting the squeeze, or energy prices are putting the squeeze on everybody. I think Thailand declared a shortage in fuel weeks ago. It a month ago or something. That's Thailand. What else do we have on here? Lennar, for example, demand is very sensitive to interest rates, to mortgage rates from 180 down to about 80. And this is all the knock-on effect of a surge in oil prices within what is already structurally higher inflation and rates. This is what you need to be thinking about because absent the AI theme, all the trades in tech and growth and so on are all predicated on lower rates as a product of low inflation. So elsewhere on here we've got some of the basic materials companies. Albemarle, this one is big in lithium. You can see a rallying off the low. This is like an all-time chart. You've probably got a reflection of the plane in the background. Is that a 1-year 52-week high? So there are still trades that are insulated from what's happening to the consumer, what might be happening to the rest of us with layoffs and all the other gloomy stuff out there. You can see that's also high. That's— is that a Chilean miner? I think SQM. What's happening to the consumer? Winnebago, believe it or not, is one of the fine barometers that I like to look at, lagging lower and lower and lower. That's telling us where the pressure is on the consumer. And then an agricultural-linked name, John Deere. I wonder if these guys maybe face a bit of a headwind or a knock from potash prices. So fertilizer prices going through the roof. If I was a farmer and I couldn't get hold of potash or fertilizer, I'm presumably not going to harvest as many crops. I might not be getting my tractor out or needing to buy a new one as often as I would otherwise if I was plowing the fields pronto. There are a few people beginning to go through the little bridge there. It's now boarding. I just got my notification. Anyway, a bunch of other names on there. Caterpillar is an interesting one. It is one of the few names that actually is categorized as a quality cyclical. So they're interesting if you're trying to play the cyclical reflation theme, but you don't just want to buy super capital-intensive, debt-burdened businesses. Debt-laden. I was looking for laden. There we go. Royal Caribbean, should we have a look at that as a consumer proxy? Well, all forms of transport are going to be hit by fuel prices and drop off in leisure and tourism anticipated. Let's just see anything else on here. American Airlines, there we go. Following a little retracement, looks as though they might be returning to the low. It seems as though this disruption and the knock-on effect of higher energy prices is here to stay. Personally, this is something that I'm looking at and I'm beginning to, you know, become a little bit more sensitive to in my decision-making. Looking out ahead over the coming months, the remainder of this year, and trying to get back to the UK for Christmas, and of course making my way back from South America this time round, you're noticing a big jump in not only the fares, but also things like when you add on baggage, because of course that's weight, lessens fuel economy. It's just all ultimately tied to the price of oil. I hope you found that useful. I'll see you on the other side, back in Asia.
