Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / The Energy Deflation Shock in 2026
Transcript
- Lucas: Look at the charts for crude oil over the last five days. They are dropping by more than six percent, hitting levels we haven’t seen since early summer. It feels like a relief if you are filling up your car, but it is actually a pretty jarring signal about where global demand is heading. Luna: Right, and when you pair that with Brent crude also taking a nine percent dive, it stops looking like a seasonal adjustment and starts looking like a structural shift in how the world consumes energy. Lucas: Exactly. And here is the part that keeps me up at night: gold is still hovering near three thousand nine hundred fifty-four dollars an ounce. Usually, when oil crashes because demand is weak, investors flee to safe havens. But here we have falling energy costs AND a premium on precious metals at the same time. That tells me the market isn't just worried about growth; it is worried about something else entirely. Luna: Do you think this is purely about demand destruction, or are we seeing a liquidity squeeze where everyone is selling liquid assets to cover margin calls? Lucas: I don't think it's just liquidity. If it were, we'd see a broader risk-off move across equities. Instead, look at the ten-year breakeven inflation rate. It just fell to two point two nine percent from two point three four. That is the bond market telling us they expect lower inflation ahead. Cheap energy is driving that expectation down hard. Luna: So if inflation is coming down because energy is cheaper, does that mean the Federal Reserve gets a pass on keeping rates high? Lucas: That is the trap. Let me tell you about my coffee. I went to the shop yesterday, and the price of beans was up nearly three percent. So even though gas is cheaper, your morning routine is getting more expensive. We are seeing this divergence everywhere—core CPI is still rising while headline numbers get pulled down by volatile energy prices. Luna: Yeah, I noticed the same thing with shipping costs. Just because fuel is cheap doesn't mean the containers are moving faster. Lucas: Spot on. And that brings us to the donation break, which is actually relevant to this idea of hidden costs. We deliberately don't run ads on these shows. If you want to support that choice, the link is buy me a coffee dot com slash fexingo — that's F. E. X. I. N. G. O. It helps us keep the research deep and the interruptions zero. Luna: It really does make a difference in how much time we can spend digging into the data rather than managing ad inventory. Lucas: Back to the data. The PCE price index, which the Fed watches most closely, ticked up to one hundred thirty-two point three in September. Core PCE is at one hundred thirty point nine. These numbers are sticky. They aren't collapsing just because oil dropped six percent in a week. Luna: But doesn't cheap oil eventually filter down to everything else? Transportation, manufacturing, plastics—it all uses energy. Lucas: It should, but there is a lag. And more importantly, there is a cap. Companies have been protecting their margins fiercely for two years. When input costs drop, they often just pad their bottom line instead of passing savings to consumers. We saw that with Apple recently when they reported weak margins despite stable hardware sales. The discipline isn't in lowering prices; it's in preserving profit. Luna: So we might be staring at a period where the consumer sees no benefit from the oil crash, while producers panic about revenue drops. Lucas: Precisely. And that creates a weird psychological disconnect. Workers feel the pinch at the grocery store because food prices are rising, but they hear on the news that 'inflation is cooling' because gasoline is cheaper. It makes the official economic narrative feel completely out of touch with daily life. Luna: That dissonance is dangerous for policymakers. If people don't believe the data, they change their behavior in unpredictable ways. Lucas: They do. And look at the copper market. Copper futures are down two percent, yet industrial demand remains robust. We are seeing a classic stagflation-lite scenario where some sectors are slowing down due to cost fears, while others remain tight due to physical shortages. Luna: Is that why gold is holding its ground so well? Investors are hedging against the fact that the central banks might misread this mixed bag. Lucas: I think that's exactly it. Central banks are watching the wrong thermometer. They are looking at headline inflation, which is falling, but core inflation and real wage growth tell a different story. Gold is betting that the Fed will have to pivot sooner than they admit because the underlying economy is softer than the CPI suggests. Luna: It reminds me of the steel paradox we talked about last year. Sometimes the cheapest raw material is the most expensive problem. Lucas: That's a great way to put it. When you strip away the noise, the simple truth is that energy prices are a leading indicator for corporate profits, not just consumer prices. If companies can't sell goods at higher prices because demand is softening, then cheap oil just means lower earnings. That is a bearish signal for stocks, regardless of what happens to your utility bill. Luna: So the S&P 500 history showing volatility after midterms might actually be driven by this kind of commodity whipsaw rather than pure political sentiment. Lucas: Absolutely. Political cycles matter, but economic cycles drive earnings revisions. And right now, earnings revisions are being dragged down by the fear that this oil drop is a symptom of a larger global slowdown, not just a temporary glitch. Luna: It’s fascinating how interconnected these markets are. You can't look at oil without looking at gold, and you can't look at gold without looking at the bond yield curve. Lucas: Right. And the bond yield curve is flattening because those breakeven rates are dropping. The market is pricing in a future where growth is sluggish. It’s a quiet recession signal, not a loud one. There are no flashing red lights, just a slow dimming of the lights. Luna: Do you think businesses are starting to cut back on hiring in anticipation of this? Lucas: We are seeing it in the tech sector already. Palantir is booming, but that’s an outlier driven by government contracts and AI speculation. Most commercial sectors are pulling back. They are waiting to see if this oil drop is permanent or just a flash in the pan before they commit to new capacity. Luna: Waiting is expensive too. Every month they wait, they lose market share to competitors who took the gamble. Lucas: True. But capital allocation has become extremely conservative. After the mistakes of the last decade, CFOs would rather hold cash than bet on expansion based on volatile commodity prices. It’s a defensive posture that drags on overall economic velocity. Luna: So we’re trading potential growth for safety. A classic move during uncertainty. Lucas: Exactly. And until core inflation breaks below that two percent target consistently, that safety bias is going to persist. The oil drop gives us hope, but it hasn't given us certainty yet. Luna: It’s a fragile equilibrium. One shock could tip it either way. Lucas: Which is why we watch the weekly data so closely. Because right now, the story isn't just about cheaper gas. It’s about whether the global machine is grinding to a halt or just shifting gears. Luna: And we’ll be here to listen to the engine noise and tell you what it means. Lucas: Stay curious. The numbers are always talking, even when they seem quiet.