Image Source: Pixabay

It’s been a wild week for markets between big tech earnings, a nothing-burger inflation report, and a very weak jobs number. Even though the presidential election is dominating the headlines now, let’s not lose sight of the fact that another 25-basis point rate cut is coming next week.

If anything, the recent economic data between inflation and employment supports the idea that more rate cuts are coming. Plus, I think the Fed wants to be present as a stabilizing force if we see any instability around or following the election.

But I want to point out something bigger that’s happening - I think crude oil is about to plummet, and it’s all thanks to the Trinity Trade. 

Have a look… 

Lower Oil Prices Means Low Inflation 

Here’s the thing when it comes to inflation data - the market will always give us a better sense of price pressures than CPI or PCE data. This is because these economic data are reporting on the past, while the market is adjusting to changes in future expectations.

Have a look at this weekly chart of crude oil.

For the past two years, prices have been trading in a ~$20 range. There is tremendous technical support, as seen by the lower horizontal white line on the chart above, in the $65 to $66 range. 

If crude oil breaks below there, I’d look for prices to drop into the $45 to $50 range at least. In fact, my more precise target is around $47.

There isn’t a major shortage of oil in the market right now, but of course, there are geopolitical risks that could cause disruptions. If that threat is eliminated on the supply side, then we must consider downside threats on the demand side. 

This is where the Trinity Trade comes into play.

You see, if we start to use other power sources like nuclear at scale, it may lower marginal demand for energy prices. To be clear, I don’t think crude oil prices will stay that low for that long, but there’s certainly a catalyst for a final shakeout lower due to other energy technologies coming into the picture.

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