08 May Weekly Recap – Rising Inflation and COVID19
It has been a very interesting week, as mostly are, in terms of global oil markets and economy. The market optimism knows no bound and asset valuations have continued to rise. However, as it has been the case, we at Primary Vision Network have continued to highlight the hidden risks that may emerge at some point in future – and interestingly, they already have.
If you have been following us it will come as no surprise to you that we have been covering inflation from past few months and giving in depth analysis about how and why this will be an issue in the coming days. We have now started to see that not only the mainstream media but also the Fed has started to mention the concerns regarding the rising inflation in combination with rising stock prices and a sea of money out in the markets. It is also very interesting to note that this market optimism has managed to hold its place even as we reached a record high in global coronavirus cases and deaths. The number of new vaccines administered have also started to peak and people, especially younger ones, are still reluctant or indifferent to getting themselves inoculated. This comes when India, one of the third largest consumers of oil in the region, is experiencing an apocalyptic surge in COVID19 cases with 400,000 cases being reported in a day for 3 consecutive days! The neighbouring countries have also started to feel the impact.
In the U.S. activity has returned but remains lower than pre pandemic levels and is expected to remain so. But one of the most important issue in the U.S. and therefore the world, is that of inflation. Net margins at the company level are manageable as of today as prices paid increase but prices received have been better in the U.S. than other places in the world such as Europe and Asia. However, it cannot remain like this forever. Recently released Financial Stability Report by Fed highlights the concerns that PVN has been emphasizing from past 4 months. Fed is now concerned with rising asset prices and all the money flowing in the system and are now worried that a change in sentiment can cause serious damage to the global system. Inflation is going to be an important issue for Fed to discuss next week. At the same time, it is important to note that the current market stability rests on, as highlighted many times before, on lower global policy rates. However, it has started to change.
So is the perception around inflation:
It will be interesting to follow next steps by Fed and also how, and most importantly when, the global market will react to this development that started months ago. To keep up to date please follow us on Youtube.
By: Osama Rizvi, Energy Market Analyst at Primary Vision Network