Stagflation Trade, Freebies Ended and Saudis Discounts

7 sept. 2021

Yesterday was a day off in the US and Canada, so the financial markets were pretty calm. Nevertheless, there was enough news, let's talk about the main ones.

Let's start with the fact that Saudi Arabia has cut its oil prices for the first time in the last 4-5 months (for Asian suppliers). The oil market strained about this - does it smell like a new price war on the oil market? We already went through this a year and a half ago, and even people far from financial markets know about minus $ 50 per barrel.

But oil is still holding on to the aftermath of Hurricane Ida. The point is that the hurricane caused quite a lot of damage to the coast of the Gulf of Mexico, as a result of which oil production in the United States decreased by 1.7 million b / d. But you need to understand that the destruction is not irreversible, which means it is nothing more than a pause before falling. What can be used to sell more expensive oil.

Although it is worth noting that, in general, this recommendation contradicts the current stagflationary trade, when prices for risky assets are growing, in particular, the technological sector of the US stock market is growing (capital inflow there over the past week amounted to about 2.5 billion), but at the same time capital goes from safe-haven assets (the outflow from the US Treasury bond market over the past week, according to BofA, amounted to about 1.3 billion). Even riskier emerging markets received a $ 4.4 billion capital injection.

At the same time, the bank notes that its private clients, who own assets in the amount of $ 3.2 trillion, increased their share in shares to a new record high of 65.2%, while reducing investments in bonds to a record low of 17.7%. The imbalance turns out to be just terrible and when the bubble in the US stock market bursts, there will be not just a lot of people affected, but a lot.

The answer to the question "when will it burst" is still open. On the one hand, the Fed and the Government continue to inject multibillion-dollar cheap money. On the other hand, the "freebie" is clearly coming to an end (in the US this week additional payments to the unemployed are stopped, which means there may be fewer "professional" traders, because someone will have to go to work as a cleaner, someone as a waiter).

Very soon, the United States may be reminded that everything has a price. The increase in budget expenditures by trillions of dollars should be accompanied at least by attempts to compensate for this by an increase in the revenue side. This means that tax increases are just around the corner: experts expect an increase in income tax, a tax on capital growth and other options for increasing the revenue side. In general, we remind you that September is the worst month for the US stock market over the past 70 years (purely statistically).