China Stock Market is Back in Favor, Fed Plans, Oil

25 авг. 2021 г.

Risk appetite in financial markets has been consistently high this week. And although the fundamental reasons for this seem more than dubious to us, the fact remains that stock markets are growing all over the world. Even the stock market in China, which has been an outcast in the past few months, is growing.

The reason for the flight of investors from the Chinese stock market was the pressure of the authorities on technology companies, ranging from threats to ban listing abroad, ending with antitrust investigations and other pressures. Our theory is that the Chinese authorities are trying to deflate the bubble in this way to avoid the collapse of the financial system if it bursts in sync with other bubbles around the world. And now it has already reduced its scale by 25 percent and the consequences will not be so catastrophic.

Other countries cannot afford this - democracy, that's all. The US appears to be planning to deflate the bubble with verbal interventions to tighten monetary policy. This is, so to speak, the Fed's plan "A".

But this plan, judging by the new highs of American stock indices, is failing. Last Hope for the Jackson Hole Symposium. If it does not help, then plan "B" is an actual tightening of monetary policy. This option provides for a tougher stock market landing, but what to do.

There is also plan "C", when the Fed will simply raise the rate on a beautiful day without warning, for example, by 0.5%, and then everything will collapse. But the Central Bank is unlikely to take such drastic measures without making sure that plans "A" and "B" have failed.

And finally, a little about oil. Its explosive growth this week is a direct continuation of the growth in demand for risky assets against the background of general groundless optimism. A fire on an oil platform in Mexico also contributed to this outrage. The scale of production losses is impressive - we are talking about 400K + b / d. But production can be restored today. And then the markets will have a reason to stop and think - are they too carried away with growth. The answer is, in general, obvious. Therefore, today we will sell oil.