Displaying items by tag: inflation

Oil prices have been rising about as fast as any point in recent time and with WTI prices pushing close to $100 a barrel, President Biden has frozen a whole selection of new oil leases in order to accommodate green energy policies. This all is imposed based on newly tagged costs to the ‘social cost’ of carbon emissions, attempting to quantify the costs of climate change. However, there is lots of supply price pressure due to both OPEC+ and the Russia-Ukraine tensions.

Finsum: The U.S. needs oil supply now as much as ever, companies are reopening shale drilling sites that were not thought profitable because oil couldn’t hit $100 a barrel.

Goldman Sachs lowered their most recent median projection for equities, putting the year-end target for the S&P 500 at 4,900. It's clear the markets hadn’t accurately priced in the Ukraine risk which could be worse in Goldman’s eyes than the 2014 Crimea annexation. Additionally, Goldman warned that if inflation continues to be worse than their expectations and faster rate hikes are needed the S&P 500 could decline by up to 12% to 3,900 by end of 2022, and if a recession occurs when the trough is lower yet. The best plays are in industrials and consumer discretionary, but still, energy leads the way.

Finsum: In lockstep with Goldman, a recession is a worst-case scenario. The TIPs market says inflation expectations are still moderate, so they shouldn’t overact to inflation.

Inflation surged to a nearly 40-year record high as the CPI index annual inflation pushed to 7.5%. This number was well above expectations and even core inflations 6% posting came in higher than consensus. In response, the Fed is going to tighten and do so significantly as regional Fed Presidents are expecting a 1% rise in the Fed Funds rate. This is a seriously hawkish turn and given there are only 3 more FOMC meetings with projections that would imply a 50-basis point rate hike possibility. The fed hasn’t hiked rates that quickly since the turn of the century. Investors are saying the Fed will want to hike by 50-basis points to keep its credibility.

Finsum: Hikes that steep could destroy the record recovery the US has had, it could lead to major windfalls in equities markets.

That's correct, Joe Biden’s latest economic rebrand is really a diet version Ronald Reagan era policy. In a recent statement, Joe Biden said that in response to inflation we can either “increase the supply of cars” or “reduce demand for cars by making Americans poorer”. This is essential supply-side economics made famous by the Reagan administration. Additionally, Yellen coined the term ‘modern supply-side’ economics just two weeks later in order to push the Build Back Better bill. This is a liberal tilt on aiding the weakening supply chains that will hopefully strengthen the economic recovery. It's a response to republicans’ attacks that BBB will surge debt and inflation.

FINSUM: The economy is in a difficult place, there is still catch up needed but undoubtedly Americans are feeling the force of inflation and another stimulus package could only further that problem.

Oil prices rose closed higher on Monday to cap off big January, in fact it was the largest monthly gain in the last year. West Texas Crude rose to $88.15 a barrel and the sixth straight weekly gain. Fueling the rising prices are the rising tensions on the border of Ukraine and Russia which seem on the brink of war. Sure, OPEC has supposedly ramped up production by 400,000 barrels a day since August, and however, they have once again underperformed in output in January. While the continued on paper output is expected to be approved in the upcoming meeting the fact is the supply is not moving the needle.

FINSUM: The factors pushing oil prices higher are here to stay, and most likely not all priced in, it could be a big bull market for traditional energy in H1 2022.