It has only taken a few short months before stagflation goes from hobgoblin of cranksets to a completely obsessed Wall Street obsession.
Everyone seems worried about it. Bridgewater Associates co-investment manager Greg Jensen says rising prices that stifle growth are a “real risk” to which many portfolios are massively overexposed. A “fairly strong consensus” among market professionals believes that some form of stagflation is more likely than not, according to a Deutsche Bank AG survey. And while the Goldman Sachs Group encouraged investors to buy dip, strategists said “stagflation” was the most common topic in client conversations.
Wherever you fall on the debate, alarm bells are ringing as energy prices are heading for multi-year highs and persistent shortages are shrinking supply chains around the world. It is fueling price pressures and pushing up bond yields, as well as cooling economic growth, and central banks such as the Federal Reserve are scaling down the stimulus in the pandemic. And after another month in a row of disappointing US job increases, efforts are rising on the way into this week’s inflation report.
“The reality is that inflation is more persistent and sustainable than the ‘temporary’ camp thought, and that inflation and its causes are once again slowing economic growth,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Much of the stress comes from the energy market, where West Texas Intermediate crude for the first time since 2014 on Monday broke over $ 82 dollars per barrel. Barrel in the middle of a power crisis from Europe to Asia. Coal and natural gas prices have also jumped, with demand ahead of winter stockpiling stocks worldwide.
The commodity wave has pushed to stagflation fears front-and-center in markets as higher energy prices have the potential to pinch consumers, according to Principal Global Investors. Gains in consumer spending are already expected to slow, prompting Goldman economists to reduce U.S. growth estimates over the weekend.
“The idea was already beginning to take shape. The rise in commodity prices has just formalized that fear, ”said Seema Shah, the principal’s global strategist. “Although there have been complaints about higher food prices, higher timber prices, higher clothing prices, it is the rise in household bills that has really put fear in people’s minds because it is so visible and rising gas prices are difficult to replace away for an average household. . ”
Sky-high commodity prices have filtered through to the Treasury market, where interest rates on benchmark 10-year banknotes broke above 1.6 percent for the first time since June last week. Making gains rise is an increase in break-even inflation rates, while so-called real interest rates – often seen as a proxy for growth expectations – have retreated so far this month.