The Santos Ltd (ASX: STO) is currently trading less than 2% in the red at $7.73 apiece, despite no market-sensitive news today.
That is, however, a far better result in early trade on Wednesday than the bolus of the ASX, following hotter than expected inflation data from the US overnight.
In fact, utilities and energy are currently the best performing sectors of the day, even though benchmarks for each are currently in the red.
The S&P/ASX 200 Utilities Index (ASX: XUJ) is down around 170 basis points whereas the S&P/ASX 200 Energy Index (ASX: XEJ) has slipped to 185 basis points in the red.
In contrast, the S&P/ASX 200 Index (ASX: XJO) is down nearly 3% on the day.
What's up with the Santos share price?
Whilst many of its ASX peers have incurred double-digit losses today, Santos has remained relatively stable from the open.
There are numerous reasons why this could be. The main sticking point, however, comes when analysing the US inflation data itself, in a bit closer detail.
Whilst the core CPI measure backs out things like food and fuel prices at the bowser, the headline inflation number records all goods and services.
Analysing both sets of numbers, and it shows consumers in the US – the world's largest economy by gross domestic product (GDP) – saw some relief in gasoline prices.
However, this was offset by gains in electricity and natural gas, two segments that have remained persistently high in 2022, despite global efforts to bring inflation down.
This bodes well for energy players such as Santos, who would set to benefit from a sustained period of high energy prices set by the market.
CPI inflation was also recorded at 7.75% in Australia in the last reading, with Reserve Bank (RBA) Governor Phillip Lowe labelling the missed projection as "a very large" miss, vouching to cripple inflation with further rate increases.
The unexpectedly high inflation print gives central banks further ammunition to continue along the hiking trail in order to clip the rate of change in aggregate prices for consumers.
Allianz Investment Management said that "[i]t's becoming more apparent to market participants that the amount of tightening from the Fed thus far has not been enough to cool the economy and bring down inflation," in a recent note.
In other words, expect more increases in policy interest rates to come.
It is this point that serves as a solid bedrock for ASX energy shares like Santos to rally once more, as they first did amid the first hiking cycle back in January of this year.
The pattern could very well occur as investors exit risk assets en masse and reposition into more defensive asset classes, in what's known as a 'flight to quality'.
We've seen as much in the performance of the US Dollar and Brent Crude oil this year, coupled with the strikingly poor performance of equities.
Nevertheless, the Santos share price remains up 22% for the year to date.
