US Dollar Up On Debt

We look at Saudi oil cutbacks, and why the US dollar can now strengthen due to a worsting debt outlook.

Can equities keep going?

The long awaited debut ceiling relief rally delivered strongly in Friday trading. And there could be more to come over coming days?

The problem with that idea, is that markets appear to be rather quickly figuring out that this is just a mother shiny credit card for the US to plummet further into historic debt territory. It was only in the 1980s that US debt was nearer 30% of GDP. Compared to the now 130% and fast rising level.

If ever there was a case of the water slowly boiling, without the US frog jumping out, then this is it. Hence my cautionary note that this stock market relief rally could very well end in a crash, remains appropriate.

What its leaping on the day, is the price of oil. Up strongly in early trading after OPEC+ announced further production cuts over the weekend.  

Driven by Saudi Arabia stepping up and reducing its production by 1 million barrels per day. Some other members also maintained previous voluntary reductions. Of particular note, was that the Saudi Oil Minister, Prince Abdulaziz bin Salman, stated very clearly that they would continue do 'whatever is necessary to maintain price stability’.

They are saying they are determined to keep the price of oil where it is now, or even higher. There are genuine concerns among some OPEC members that the slowing global economy will reduce demand significantly. The organisation, and particularly Saudi Arabia, appears determined to staying ahead of the supply curve. Rather than responding to it.

With China’s post Covid-lockdown boom now behind it, and the US facing persistent recession risk, it is unlikely OPEC will change track in the months ahead.

Clifford Bennett has over 36 years of market trading experience and was named the 'World's most accurate currency forecaster' by Bloomberg New York. He has advised some of the world's largest organisations, billionaire investors, and political leaders and spoken at the prestigious APEC summit on reserve currency issues. Clifford is the Chief Economist at ACY Securities.