Default's Canceled for Now. We're Analyzing Fresh Correlation

8 thg 10, 2021

Yesterday the markets continued to be optimistic about the future, because one of the key fears - the US default is still delayed in time.

We are talking about what, in general, the Republicans announced on Wednesday - the powers of the US Treasury Department on borrowing have been extended until early December (the Senate has already voted to increase the public debt ceiling by 480 billion, now it's up to the House of Representatives). That is, the financial Armageddon, scheduled for October 18, is canceled. While canceled, not canceled in principle. So the joy of buyers in the US stock market, in our opinion, is more than premature.

The growth of stock indices yesterday can also be explained by the fact that the tension on the energy assets market has somewhat eased. More precisely, it was such a feeling in the morning. But at the end of the day, the pressure resumed, so it’s early to rejoice. Oil again approached $ 82 per barrel of the Brent mark, and neither the next discounts from Saudi Arabia, nor the US threat to print out the strategic stock and sell part of it on the market helped.

We cannot fail to note once again that it is now generally useless to analyze the fundamentals of the oil market. Oil is clearly in the waterway of natural gas. The level of correlation between assets for graying for a couple of months increased from -0.5 (quite a strong feedback, that is, an increase in natural gas prices was accompanied by a decrease in oil prices in 50% of cases) to 0.9 (now, in 9 cases out of 10, an increase in prices for gas is accompanied by an increase in oil prices).

Speaking of correlations and interconnections, an interesting hedge link has emerged. We are talking about a sharp change in the relationship in the dynamics of prices in the US stock market and the natural gas market. A month ago, the connection was direct and quite strong - the correlation coefficient remained 0.71 (in 7 cases out of 10, the rise in gas prices was accompanied by a rise in prices on the US stock market). But now the opposite picture is observed: in 7 cases out of 10, the increase in gas prices is accompanied by a decrease in prices on the US stock market.

That is, sales on the US stock market can be hedged by purchases on the natural gas market. Or, if you prefer, purchases of natural gas can be insured by sales on the US stock market.