Lori Calvasina predicts a sluggish economy while Nela Richardson discusses the complexity of the Fed's job. Kevin Book believes there is room for oil to run, and Alan Ruskin anticipates a weaker dollar with a Fed cut. David Lebovitz expects airlines to raise prices. Topics include the impact of rising jet fuel prices, the state of the labor market, the stability of the dollar, and the uncertainty of economic forecasts.
The US is facing a sluggish economy due to higher energy prices and potential softening in growth, posing a challenge for the Fed in balancing inflation and recession.
Higher oil prices present challenges for the airline industry, potentially impacting consumer spending and inflation, with airlines relying on pricing power to protect margins and contribute to overall inflationary pressures.
Deep dives
Crude oil prices and the tension between growth and inflation
The rise in crude oil prices to around $90 presents a tension between the growth and inflation narratives for the Federal Reserve. Higher energy prices and the resumption of student loan payments could test the resilience of consumers, leading to a potential softening in growth. This poses a challenge for the Fed as they try to combat inflation while avoiding a recession.
Impact of rising oil costs on airlines and the consumer
Higher oil costs, specifically jet fuel prices, present challenges for the airline industry. This could lead to higher prices for consumers, potentially impacting consumer spending and inflation. Airlines may continue to rely on pricing power to protect their margins, which in turn could contribute to the overall inflationary pressures.
Shift from consensus on soft landing to potential challenges
The narrative of a soft landing in the economy is being challenged, with concerns growing about slower growth. Recent developments, such as China stalling and cracks appearing in the European economy, have introduced uncertainty. This is causing investors to reevaluate their positions, particularly in relation to valuation levels and potential headwinds on the horizon.
Exploring possibilities in the energy sector
The energy sector, particularly oil companies, may see potential growth due to higher oil prices. While there have been false starts in the past, the underlying businesses are in better shape compared to previous years. If oil prices continue to rise, energy companies may experience margin expansion, leading to increased investor interest and potential outperformance.
Lori Calvasina, RBC Capital Markets Head of US Equity Strategy, says the US is staring down the barrel of a sluggish economy. Nela Richardson, ADP Chief Economist, says the Fed's job is more complicated now. Kevin Book, Clearview Energy Partners Co-Founder, says there is still room to run for oil. Alan Ruskin, Deutsche Bank Chief International Strategist, says a Fed cut could cause a weaker dollar and potentially ease some China pressures. David Lebovitz, JPMorgan Asset Management Global Market Strategist, expects airlines to continue to raise prices to defend their margins. Get the Bloomberg Surveillance newsletter, delivered every weekday. Sign up now: https://www.bloomberg.com/account/newsletters/surveillance