This Week in Financial Markets: 3.20.2024

1. RIP to Negative Interest Rates

This week, the Bank of Japan raised rates from 0% to 0.1%, officially abandoning their negative interest rate policy. This was the first such rate hike in over a decade. This is in response to the inflationary pressures that have been building in Japan. Wage growth is currently rising at its fastest pace since 1991.

The BOJ is also discussing ending their ETF and corporate bond purchases.

2. US is Producing, But Oil Prices are Climbing

The USA is now producing more oil than any country in history! However, with strong global demand and multiple refineries (supply) in Russia being attacked by drones in recent weeks, oil prices are now at 4-month highs.

According to GasBuddy data, weekly US gasoline demand rose 3.2% last week and was 1.9% above the 4-week moving average. It was the highest demand since the week before Christmas. Seasonal increases will likely continue.

Another concept which few seem to be discussing is the energy consumption that will be required if both crypto and AI (and thus datacenters) grow at their expected rate.

Throughout the past few years, energy and tech stocks have been inversely correlated. However, as AI and crypto grow in the real world, their correlation with energy prices (and stocks) is likely to rise.

Oil prices are rising. Inflation is rebounding. Rates are climbing back higher. But does this matter for equity indices, which are dominated by mega-cap stocks? The most highly-levered equities are at multi-decade lows in terms of their weight within indexes. The answer to the question likely demands on how aggressive the Fed plans on fighting inflation. Later today, we get new insight!