Displaying items by tag: energy
Inflation is as buzzy as it has been since the 1970s, and the nation’s energy crisis is drawing another parallel to that decade. In an attempt to curb oil prices Biden released the nation's oil reserves hoping to drive down gas prices. However, earlier this year Biden tried to pressure OPEC+ to increase production to put downward pressure on prices and they rejected. Sure, if OPEC+ maintains production or actually increases (as they had stated they would) then prices will fall, but OPEC+ and other oil producers like Russia target a $70+ per barrel price point to optimize their profits. Many are speculating that this will cause OPEC+ to pull back production after their meeting in December, and spark a rift between oil producers and consumers like the U.S.
FINSUM: This is a desperate attempt by Biden to control prices which there has been little to no precedent for in past presidencies. This could blow up by hurting U.S. producers more and leaving oil prices unchanged.
Monetary policy is diverging in emerging markets with some countries keeping policy rates low and others beginning to tighten, and investors are beginning to make a ruling. Countries like Russia, Columbia and South Korea all experienced currency appreciation due to tighter policy, and certain investment classes are being rewarded. Bond markets are signaling a yield curve inversion in Russia, pricing in future rate hikes, but this has been okay for oil exports. While at the other end, Turkey saw its yield curve climb and its currency—the lira—perform poorly in October. There were mixed signals from Brazil, where the fiscal policy signaled lots of public spending. The monetary policy started to tighten to curb inflation, and as a result, markets punished the Brazilian real.
FINSUM: There are diverging schools of thought globally as to how to respond to the combination of the world’s energy crisis and the lingering Covid-19 pandemic.
Russia’s finance ministry is proposing the nations $191 billion dollar wealth fund adopt environmental, social, and governance principles in their investment selection. While this puts him inline with the Russian central bank, Russia’s Economic Minister, and the rest of the globe he might face opposition from Putin. ESG buys wouldn’t be adopted until 2024 at the earliest and would work towards the country’s 2060 goals of being carbon neutral, but currently Russia is far from those objectives. They are the world’s 4th largest greenhouse gas producer and Putin sees their energy production as key to their global powers.
FINSUM: Russia is planning to ramp up its oil and gas production in the face of the global shortage, so don’t expect them to jump all in on ESG too quickly.
Whether the US’ current bout of inflation is caused by transitory supply-side factors, or trillions of dollars poured into the economy by policymakers, is irrelevant because investors are now tasked with finding a way through the stock market jitters. As inflation rises it eats at yields and the value of fixed coupons falls. To avoid the pitfalls of rising prices look to dividend stocks, whose yields are pushed higher by inflation. Of course not all dividend stocks are created equal and some will outperform in an inflationary environment. The best income stocks are in the financial sector because they benefit from rising interest rates, as their interest rate margins expand in such environments. Energy is next, at least currently. Higher demand boosts prices of oil and gas, which benefits energy sector investors as it is one of the highest dividend payers. These sectors are the most likely to boost their dividends in the rising price environment.
FINSUM: Dividend stocks have no doubt outperformed just about every segment of the bond market, and expanding your dividend holdings may be a good idea as inflation comes in at 20-year highs.
Energy prices are rising from the U.S. to Europe, and while that might spark a good upside for energy companies it’s causing a crisis for those reliant in Europe. BSF SE and Aurubis AG are the continent’s number one producers in chemicals and copper respectively, but energy prices are eating at their margins. Major U.K. fertilizer companies are shutting down plant production in Norway. Gas prices are up nearly 200% in Europe and input costs have doubled as a supply crunch ravages the West. This shortage is painful on the frontside with high input costs but on the sell-side as well. Higher energy costs are eating up a larger percentage of home budgets and curtailing retail spending. Goldman Sachs expects the calamity to continue into the winter and warns of blackouts if consumption isn’t curbed. Finsum: This is the time to up the stakes in American energy prices. Energy shortages aren’t good for anyone but oil and gas are release valves.