This spectacle of the 70s? Oil raises new fears over old problem: Morning Brief

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Thursday, September 30, 2021

Once again, Wall Street is concerned about slowing growth and relentless inflation.

In the wake of the surge in oil this week, which coincided with energy crises in China and the UK, a certain word associated with slowing growth and higher inflation – popularized during a particularly difficile almost 50 years ago – began to circulate.

What word are you looking for? Stagflation.

Since soaring inflation – including crude oil prices (CL = F) – became the subject of the resumption of the pandemic era, stagflation has been talked about more and more, especially as the growth slowly returned to earth from stratospheric levels after the lockdown. In Britain, gas pipes reminiscent of the 1970s captured public attention.

Today, with extreme weather events like Hurricane Ida reducing energy supplies and looming cold for the northeastern United States, Brent crude hits $ 80 a barrel, which, combined to rising yields, disrupted the market.

It also prompted a few Wall Street banks to make some pretty aggressive oil price forecasts before the end of the year. This week, Goldman Sachs went from a “cyclically bullish view to a structurally bullish view of oil,” prompting analysts to raise its year-end forecast to $ 90 a barrel.

And given the current trends related to COVID-19, it’s making some people nervous.

“The supply is just not there to meet the demand, and the fear becomes if there is a harsh winter, there are going to be severe price spikes,” Bob Iaccino told Yahoo Finance Live on Wednesday. , co-founder of Path Trading Partners.

With natural gas inventories already relatively low and prices skyrocketing alongside crude (which, incidentally, puts upward pressure on gas prices at the pump), “the government is some ability to mitigate these for individual households, ”added Iaccino.

To be sure, the economy, although it is undoubtedly slowing down, is far from reaching levels compatible with stagnation. The scorching demand that has made labor and supplies scarce shows no signs of abating anytime soon.

However, crude’s flirtation with $ 80 is a painful reminder that consumers are already paying more for everything, and energy costs may soon be the last straw.

In an analysis this week, John Higgins of Capital Economics wrote that the company envisions “a future in the United States in which inflation is significantly higher than it has been in the past decade, but still moderately above target; economic growth remains healthy as supply constraints ease; and the Fed is not pushing the brakes very hard.

However, economists have long warned that higher commodity prices act as a tax on consumers, who spend with almost reckless abandon. If they decide to tighten the purse strings, it could have serious consequences for growth prospects.

“While our basic view assumes that inflation will remain below 5% in most advanced economies … we believe the risks to this view are more on the upside than on the downside,” noted Higgins.

“If inflation rose significantly above this level, we believe it would start to undermine the outlook for economic growth and potentially lead to higher real rates, jeopardizing the outlook for many assets,” the economist added.

Through Javier E. David, editor of Yahoo finance. Follow him on @Teflongeek

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What to watch today

Economy

  • 8:30 a.m. ET: Initial jobless claims, week ended September 25 (330,000 expected, 351,000 during the previous week)

  • 8:30 a.m. ET: Continuing complaints, week ended September 18 (2,845 million expected; 2.845 million in the previous week)

  • 8:30 a.m. ET: Annualized GDP, quarter to quarter, third estimate of second quarter (6.6% expected, 6.6% in previous estimate)

  • 8:30 a.m. ET: Personal consumption, second quarter third estimate (11.9% in previous estimate)

  • 8:30 a.m. ET: Basic personal consumption expenses, second quarter third estimate (6.1% in previous estimate)

  • 9:45 a.m.ET: IMN Chicago PMI, September (65.0 expected, 66.8 in August)

Earnings

Pre-marketing

  • 6:50 a.m. ET: CarMax (KMX) Expected to Report Adjusted Earnings of $ 1.87 per Share on Revenue of $ 6.88 Billion

  • 7:45 a.m.ET: Bath in bed and beyond (BBBY) Expected to Report Adjusted Earnings of 52 cents a Share on Revenue of $ 2.06 Billion

Post market

Politics

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