The recent surge in oil prices is forcing investors to reconsider their asset layout.
Due to the release of the latest interest rate meeting results by the Federal Reserve on Wednesday, energy and its potential impact on inflation and economic growth have become one of the hottest topics in the market.
Some analysts believe that one of the most obvious impacts of the current surge in oil prices is that the surge in oil prices will disrupt the downward trend of inflation and prevent the Federal Reserve from starting interest rate cuts as early as the market hopes.
The sharp rise in oil prices is causing a gap between the foreign exchange rates of oil importing countries and exporting countries. Due to the impact of declining oil supply, almost all currencies have weakened against the US dollar, especially the euro, yen, Swedish krona, and other Middle Eastern currencies, which have shown weak performance. A few other oil exporting countries such as Brazil and Canada may be able to withstand a broader storm.
Another type of asset that has been impacted by high oil prices is aviation stocks. The rise in fuel prices is squeezing airline profits, leading investors to sell off stocks in industries such as aviation and logistics. The S&P Super Composite Aviation Index, consisting of 10 companies, has fallen 20% since mid July, becoming one of the most severely hit US stock markets in recent months.
In contrast, European energy companies are expected to make significant profits from high oil prices. For the FTSE 100 in the UK blue chip index, energy stocks are a particularly strong driving force. Although the industry's weight in the index is only about 13%, its 2022 earnings accounted for 26% of the index.
In the US stock market, energy stocks have once again become a hot trading topic on Wall Street, with strategists at Goldman Sachs and JPMorgan Chase advising investors to increase their holdings.
Some analysts believe that in the coming months, the energy sector will perform well and trigger a new trend of investing in large oil stocks with underperforming stock prices. Even the US stock market will experience sector rotation, and leading sectors are expected to switch from technology stocks to energy stocks.
In the bond market, US and European bond yields have been rising, partly due to investors considering that interest rates will have to remain high for a longer period of time. In Germany, people are increasingly concerned that expensive energy will harm the country's industry. The two-year German treasury bond yield has jumped to 3.2%, compared with 2.9% at the beginning of August.
