Stocks everywhere are on the rebound and in spectacular fashion no less.
US equities saw 8 weeks of decline, with the past week offering one of the most encouraging price action periods so far.
The bottom of what has been a major and significant corrective period may now be in place? That said, we cannot yet be certain.
As the US and global fundamental backdrop continues to deteriorate. The US consumer is at crisis levels of confidence and expecting high inflation. Yet consumer spending rose 0.9%. One has to wonder if this may be just some last-minute shopping prior to bunkering down. I doubt the US consumer is as resilient as many are claiming.
Chronic extreme energy prices are a planet economy killer
Then there is the price of Oil. The Oil market may yet again be the equity market’s undoing.
The reduction in supply and refusal of supply is gathering considerable momentum as Europe looks to reduce Russian oil imports by 90%.
Whether you consider it good or bad, the climate change focus of the past decade has led to severe under-investment in new oil fields or production capacity globally. This will add to the difficulty of supply replacement.
A huge effort will be made to substitute alternative renewable energy sources, though this may be neither rapid nor substantial enough. The world is facing some serious energy supply concerns. Some nations may well experience energy shortages over the coming twelve months and this will continue to force the price of oil alarmingly higher.
The forecast here has always been US$150 a barrel this year, risk $180, and a move as high as the obscene, that is $250 is not out of the question level, for 2023.
In other words, we should all be focussed on the very clear risk of much higher oil prices than we have already seen. The most conservative in forecast, I believe, should be that $140 to $150 zone.
What is different about this particular oil price shock is that we should not expect a spike reversal as has always previously been the case.
The low level of supply response capability means that Oil will likely remain in that $140/150 area for the rest of this year, or even higher.
Chronic extreme energy prices are a planet economy killer.
The global economy will shudder from such extreme and sustained energy prices. The stock market, after yet another moment of euphoria, may yet tank absolutely.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
