Mikkel Rosenvold
4 weeks ago

Analyst: Re-newed Inflation starting to hurt stocks

Amidst rising energy prices and a robust USD, equities are experiencing a slowdown, with significant impacts from commodity market trends.
JMiks / Shutterstock.com
JMiks / Shutterstock.com

In this week’s issue of Steno Research's Energy Cable, Ulrik Simmelholt highlights the recent calm in cross asset markets despite continuing volatility. Key observations include a decrease in the US long-term interest rates and crude oil prices dropping below USD 90, though equities, specifically the S&P 500, have notably suffered, dipping below 5,000 for the first time since February. The energy sector remains resilient, outperforming other sectors and echoing long-standing advice about the XLK/XLE ratio being a modern balanced portfolio strategy.

Market analysts observe a shift among active equity and fixed income managers who now favor short-term US government debts, anticipating them to outperform the broader market amid rising inflation fears. This trend suggests a growing preference for assets with a positive equity risk premium or traditionally safer investments.

The article further discusses the implications of the US yield curve, particularly its long end, on various economic aspects such as loans, mortgages, and corporate financing. The current trajectory indicates that it might surpass 5%, a signal for investors to reconsider their asset allocations as long as the reflationary trend persists.

Focusing on Europe, Simmelholt points out the critical role of energy prices in shaping European Central Bank (ECB) policies. Recent spikes in energy costs, particularly crude oil and natural gas, could influence the ECB’s rate decisions, potentially delaying anticipated rate cuts. The piece also notes the volatility in natural gas prices and its slight increase in April, which could impact manufacturing sectors across Europe, especially in Germany.

Lastly, the article touches on China’s commodity strategy, observing a significant accumulation in copper, oil, and iron ore inventories. This trend might indicate a preparatory move for a potential structural devaluation of the yuan, suggesting a strategic stockpiling of essential commodities.

In conclusion, as commodity prices continue to influence global economic policies and market dynamics, investors and policymakers alike are advised to keep a close watch on these developments, which are crucial for making informed decisions in the coming months.


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