The unabated rise in oil prices is forcing the world to reconsider investment strategies.
Airline stocks, currencies of oil importing countries, and government bond yields. These are just a handful of asset classes that are beginning to reflect the reality of North Sea Brent futures reaching the $95/barrel range. Meanwhile, strategists at Goldman Sachs Group and Barclays have released macro reports explaining to clients trading strategies in the wake of energy price shocks.
Crude oil continues to rise, risk increases for North Sea Brent at $95-$100 for the first time in 10 months
Michel Menigoz, head of equities and balances at Sanso Investment Solutions, said: “One of the most obvious effects is that high oil prices could upset the trend of slowing inflation and lead to central banks cutting interest rates sooner than the market expects.” “We probably won’t be able to start.”
U.S. Federal Reserve faces “nemesis” high oil prices – threat from both growth pressure and inflation acceleration
Below are four charts summarizing how the market is reacting to the rise in crude oil prices.
dollar strength
Unstoppable dollar strength, soaring oil prices provide further tailwinds – euro and yen suffer
The impact of high energy prices on exchange rates is divided between oil importing and exporting countries. “Almost all currencies are depreciating against the dollar due to the oil supply shock,” said Themistocris Fiotakis, head of currency analysis at Barclays.
While the euro, yen and Swedish krona are particularly vulnerable to selling, some other exporting countries such as Brazil and Canada may be able to weather the general market storm, he said.
airline stocks
Rising fuel prices are putting pressure on airline companies’ profits, and travel and logistics stocks have also been sold. The 10-company S&P Supercomposite Airline Stock Index has fallen 20% since mid-July, and the decline has been particularly steep in recent months.
American Airlines lowers profit forecast for July-September period as fuel costs rise
European oil major
European energy companies, by contrast, have significant tailwinds. Energy stocks play a major role in the UK’s FTSE 100 index. The energy sector accounts for about 13% of the FTSE 100, but generated 26% of the 2022 profits of all constituent companies.
Energy stocks are enjoying a resurgence on Wall Street, with strategists at Goldman and JPMorgan Chase recommending overweight them.
Edmund Singh, global chief investment officer at BNP Paribas Wealth Management, said he expects energy to remain strong in the coming months, leading to a shift of capital to big oil companies that have lagged behind. “It’s about time to exit tech stocks, like Nvidia. If you look at the post-earnings activity, it seems like everyone who wanted to buy has already bought,” he says.
Bond Market
Government bond yields in the United States and Europe have been steadily rising as expectations that high interest rates will continue for an extended period of time. This is particularly notable in Germany, where there are growing concerns that soaring energy prices will hurt the industry’s driving force. The yield on German two-year bonds has jumped to 3.2% from 2.9% in early August.
Dario Perkins, managing director of global macro at TS Lombard, said the recent high oil prices are reminding markets that “inflation volatility is not going away.”
Original title:Oil’s Ascent to $95 Is Changing Trades Across Wall Street(excerpt)
2023-09-19 17:37:00
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