Posted by Davy Bui on June 19th, 2008 in Market Commentary
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According to Bloomberg, oil took a big drop today due to an 18% increase in the fuel price by China, who subsidizes their domestic energy market. As a result, energy stocks are taking a a little dive today while the broader market enjoys a little rebound.

I guess it would be logical to think that higher Chinese prices = lower energy demand = lower energy prices globally = less valuable energy stocks. But explain to me how this is going to help retail stocks like AEO, GPS, etc. which are showing solid gains today?

We’ve seen ample evidence (see my recent post on Whirlpool) that businesses are having a hard time passing along price increases to the end consumer. Higher energy costs in China will pressure manufacturers and the supply chain based there but ultimately winds up here in the US. We’ll probably continue to see more wacky PPI numbers where the headline is up some ridiculous percentage yet “core” PPI remains at 0.2%. But the market can’t seem to think three moves ahead.

I haven’t said it much lately because honestly, repetition is onerous but any pullback in commodities are temporary and should be welcomed as opportunities to build larger positions. Of course, oil is still over $130/bbl so it’s not much of a correction at this point.