With fears of a recession gaining ground, the sentiment among global fund managers remains cautious. Bank of America Merrill Lynch’s latest survey showed that 38% of investors expect a recession over the next 12 months, the highest in a decade. The risk of a recession is now the third-biggest concern among investors. So, the clamour for fiscal stimulus is getting louder.

Those surveyed said that a fiscal stimulus was essential to boost allocation to stocks, earnings per share expectations and turbo-charge nascent rotation from growth to value stocks. “Investors think a German fiscal stimulus package, a 50-basis point cut by the Fed in September or a Chinese infrastructure package would be the most bullish for risk assets over the next six months," according to the survey. One basis point is one hundredth of a percentage point.

But, the sudden rally in Brent crude following the drone attacks on Saudi Arabia’s oil facilities could dash hopes of stimulus. In two trading sessions, crude oil prices have surged more than 13% and is currently trading at $68/barrel.

Higher Brent crude prices would push inflationary pressures higher for many countries, and restrict global central banks from pumping more funds into the system.

In fact, equity analysts are now saying that the Federal Open Market Committee, which is meeting on 17-18 September, may now refrain from moving on rates, unlike expected earlier.

Resilient growth of the US economy backed by consumer spending and the potential inflation impact from oil could act as a deterrent to further rate cuts.

If this increase in oil prices continues, it would put some oil importing Asian economies, including India, in a tight spot. India imports nearly 80% of its crude oil requirements. Not only has the rupee depreciated further, but inflation and twin deficits would be impacted too.

As it is, subdued revenue collections have kept the fears of a fiscal slippage looming. According to Jefferies India Pvt. Ltd’s estimates, the shortfall in tax collections, although offset by the one-time transfer of surplus by the central bank and lower expenses, would result in fiscal slippage to 3.48% of GDP. Inability to massively spend has made fixing the consumption slowdown a herculean task for the government.

And with a further rise in oil prices, expectations of more stimuli and rate cuts would take the backseat, hurting investor sentiments.

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