Wednesday proved to be an optimistic day for decision taking. In anticipation of a press conference from the US Federal Reserve, most investors tried to buy while waiting for statements from the US Federal Reserve.
Let us try to look at the current market situation from the theory side. The coronavirus pandemic, which was to bring chaos to all financial markets, did not work. The US stock market continues to trade near its record highs. Why?
There used to be one definition called the “Minsk moment”. Analyst Haiman Minski said that when the market grows irrationally for a long time, a deep collapse will inevitably follow. Such movements took place in 1998 and 2008, when market collapses triggered various economic factors.
The US Federal Reserve injects huge amounts into the economy. Given zero interest rates as well as bond yields, money goes directly into company stocks. It is not yet known what such an entrance into companies’ positions can do for investors. If there is a sale cascade that triggers a certain wave of market positions, we may see the greatest sale on the stock markets in 20 years.
There is a very ambiguous situation on the market. On the one hand, the coronavirus pandemic, which is gaining momentum every day, is putting pressure on the global economy and forcing investors to try to forecast the situation for months to come, although a vaccine is about to appear which will save everyone. On the other hand, oil reserves have fallen by 150-200 million barrels since the summer peak of 1.2 billion barrels in the autumn.
Statistics say the opposite and make the price of WTI oil rise. On Wednesday, the oil price rose by more than 4% in just one trading session and traded at $40 per barrel. This was once again supported by a cheap dollar and optimistic sentiment among investors.
All of this looks great in the current situation, but everyone remembers the April collapse when the price of futures went down. The main thing in this situation is to know that the oversupply reaches a point where the cost of chartering a floating storage tanker is a bit profitable. At the time, the price of oil was around $10 per barrel.
The second wave of coronavirus will be a major obstacle to both the growth of the oil market and the world economy. Perhaps the “bubble” that has already been inflated will burst soon. All we have to do is wait for the catalyst.
What awaits us today?
03.30 Change in employment rate in Australia for August
09.00 Press conference of the Bank of Japan
11.00 EU Consumer Price Index from the beginning of the year
14.30 Number of initial applications for unemployment benefits in the USA
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