The Better the Economy, the Worse the US Stock Market

7 Okt 2021

At first, yesterday was in line with basic trends. In a panic, we bought up any assets with the prefix energy. The peak of hysteria was observed in Britain, where natural gas prices grew by almost 40% during the day. But as usual with moments of hysterical growth, they stop almost instantly and for no apparent reason.

As a result, oil and gas prices formed confident black candles by the end of the day. However, to take this as a signal that the worst is behind it is even more than premature. Moreover, according to Saudi Aramco estimates, the current energy crisis has already added about 500K b / d to world oil demand. Considering the problems with electricity in China and the love of the Chinese in such cases to use diesel power generators, it is far from the fact that everything will be limited to an increase in demand of 500K b / d.

Meanwhile, the nerves of the Central Banks are beginning to fail. Almost simultaneously, the central banks of New Zealand, Iceland and Poland raised rates. The reason is obvious - inflation, which does not even think to stop its growth. For example, in Poland, for example, inflation reached its maximum values ​​over the past 20 years.

Next in line are the ECB and the Fed. Moreover, the latter received another reason yesterday for tightening monetary policy. This refers to the publication of employment data from the ADP. They came out better than expected and in general showed a very impressive 568K. Let us remind you that the Fed constantly justified its reluctance to tighten monetary policy by the insufficiently good form of the US labor market. Well, if the NFP is not let down on Friday, then there will be nothing to hide behind.

As a result, on excellent data on the labor market yesterday, the US stock market experienced another round of sales. The logic is as follows: good data is bad for the stock market, because the Fed will start tightening monetary policy earlier. In general, the better the worse.

Although it is worth noting some progress in the issue of the US government debt ceiling, which at least makes it possible to postpone the US default. So the jump in optimism and the growth of stock indices at the end of yesterday's trading session can be called justified. But there are still no prospects for this growth in the current realities. So we continue to sell.