Inflation, Is It Over? Yield Curve Flattening?

Baltic Dry Index. 1137 -07           Brent Crude 86.24

Spot Gold 1913                  US 2 Year Yield 4.82 +0.03

The natural tendency of the state is inflation.

Murray Rothbard.

One US inflation number down, slightly better than the consensus expectation, today’s PPI figure to go.

Was that really it on US inflation? What now?

Well the price of Brent crude oil and European natural gas prices are rising again, and the US Strategic Oil Reserve is at a 40 year low with little chance of refilling it without setting off another bout of energy inflation, so it might be a little early to write-off US inflation ahead of the coming northern hemisphere winter.

While I maybe a little early, it looks like the inverted US yield curve might be flattening.  Time to scale in to gold?

Asia markets mixed as U.S. inflation cools more than expected

UPDATED FRI, AUG 11 2023 12:23 AM EDT

Asia-Pacific markets were mixed on Friday after inflation in the U.S. came in lower than expected, raising hopes markets could see a “soft landing” in the inflation fight.

July consumer prices gained 3.2% on an annual basis, less than the 3.3% consensus from economists polled by Dow Jones. On a month-to-month basis, inflation increased 0.2%, in-line with estimates.

The report also said real average weekly earnings were unchanged last month in another positive sign.

However, the core inflation rate — which strips out prices of food of energy — was at 4.7%, the lowest since October 2021 and lower than the 4.8% expected.

In Asia, Australia’s S&P/ASX 200 was marginally below the flatline, while South Korea’s Kospi was up 0.17% and the Kosdaq gained 0.5%. Japan’s markets are closed for a public holiday.

Hong Kong’s Hang Seng index slipped 0.1%, while stocks on mainland China were also generally lower, with the CSI300 index trading close to the flatline.

Overnight in the U.S., all three major indexes gained on the softer inflation print, with the Dow Jones Industrial Average adding 0.15%. The S&P 500 inched up 0.03%, and the Nasdaq Composite rose 0.12%.

Asia markets mixed as U.S. inflation cools more than expected (cnbc.com)

Stock futures rise slightly after July’s cooler-than-anticipated consumer inflation reading: Live updates

UPDATED THU, AUG 10 2023 7:52 PM EDT

U.S. stock futures inched up on Thursday night as traders mulled over July’s consumer inflation report and looked ahead to wholesale prices data.

Futures linked to the Dow Jones Industrial Average rose by 38 points, or 0.1%. S&P 500 futures and Nasdaq 100 futures climbed 0.1% and 0.2%, respectively.  

During Thursday’s main trading session, the major averages notched small gains, but were far off the session’s highs. The Dow added 52.79 points, or 0.15%, while the Nasdaq Composite gained 0.12%. The S&P 500 ticked up just 0.03%. 

July’s consumer price index indicated prices rising by 3.2% on an annual basis, which was lower than the 3.3% forecasted by economists, per Dow Jones. However, the core CPI, which excludes volatile food and energy costs, rose 4.7% from the prior year.

“I think investors in general have just been overly optimistic as we enter this seasonally weak period,” said James Demmert, chief investment officer of Main Street Research. “The print on the CPI, I think, is a reminder: The Fed’s done a lot of this work that needs to be done, but it’s still a bit sticky. So that means rates [are] higher for longer,” he said Thursday on CNBC’s “Closing Bell: Overtime.”  

Demmert added that there are indications the market may be due for more of a pullback from current levels, noting the market’s retreat from its “big open.” 

“That’s kind of what corrections look like as you roll through. And I think we’re just a third through this one, so far,” he said.

On a weekly basis, the S&P 500 and the Nasdaq are bound for declines of 0.2% and 1.2%, respectively. Both are on pace for their second straight losing week — a first for the tech-heavy Nasdaq since the conclusion of a four-week losing streak in December 2022. The Dow is an outlier of the three major averages, on track for a modest gain of 0.3%.

Investors will be keeping an eye on more economic data to come on Friday. July’s producer price index data will be out at 8:30 a.m. ET, while preliminary consumer sentiment data for August is due at 10.

Stock market today: Live updates (cnbc.com)

Inflation gauge rose 3.2% annually in July, less than expected

PUBLISHED THU, AUG 10 2023 8:31 AM EDT

The consumer price index rose 3.2% from a year ago in July, a sign that inflation has lost at least some of its grip on the U.S. economy.

Prices accelerated 0.2% for the month, in line with the Dow Jones estimate, the Bureau of Labor Statistics reported Thursday. However, the annual rate was slightly below the 3.3% forecast.

Excluding volatile food and energy prices so-called core CPI also increased 0.2% for the month, equating to a 12-month rate of 4.7%. The annual rate for core also was slightly below a Dow Jones consensus estimate for 4.8%.

Markets reacted positively to the report, with futures tied to the Dow Jones Industrial Average up nearly 200 points and Treasury yields mostly lower.

Almost all of the monthly inflation increase came from shelter costs, which rose 0.4% and were up 7.7% from a year ago. The BLS said more than 90% of the increase came from that category, which accounts for about one-third of the CPI weighting.

Food prices increased 0.2% on the month, and the BLS said energy increased just 0.1% even though crude prices surged during the month and prices at the pump jumped as well.

Used vehicle prices declined 1.3% and medical care services were off 0.4%.

The comparatively tame inflation levels helped raise worker pay. Real wages increased 0.3% on the month and were up 1.1% from a year ago, the BLS said in a separate release.

The annual rate for headline inflation, while below expectations, actually marked an increase from the 3% level in June.

Together, the latest batch of data shows that while inflation has come well off its 40-year highs of mid-2022, it is still considerably above the 2% level where the Federal Reserve would like to see it and high enough that cuts in interest rates are unlikely anytime soon.

More

CPI inflation July 2023: Inflation rose 3.2% annually (cnbc.com)

Finally, if inflation is beat and the next move by the Fed and other central banks is to lower interest rates, some see a big move for gold coming up during next year’s US election year.

 

Gold prices to breach all-time highs? Some expect bullion to hit $2,500

PUBLISHED THU, AUG 10 2023 7:33 PM EDT

Gold prices are on track to rally to all-time highs in 2024 on the back of tapering interest rates, and looming recessionary fears that elevate its role as a safe haven asset.

Spot gold prices hit a record intraday high of $2,072.5 on Aug. 7, 2020, according to data from Refinitiv. Analysts who spoke to CNBC say they could surpass that level and push beyond the record.

“I do see gold move above $2,100 in late 2023, early 2024 as a trading level,” said TD Securities’ managing director and global head of commodity strategy, Bart Melek, attributing his optimism to a potential pause in the U.S. Federal Reserve tightening cycle.

“I am positive on gold as I believe that the Fed will tilt policy away from its current restrictive mode. This I believe will happen before the 2% inflation target is reached,” Melek told CNBC in an email.

Spot gold was last trading at $1,912.26 per ounce.

The Fed began its steady stream of rate hikes in March 2022, as inflation climbed to its highest in 40 years. In less than two years, it has raised borrowing costs to between 5.25% to 5.5%.

Gold has outperformed most other major asset classes in the past 12 months, Melek wrote in a recent report, attributing it to the yellow metal’s ability to resist rising interest rates and its value as a safe bet against inflation. 

Some analysts are particularly bullish on gold, and have called for a target of $2,500 by the end of next year — that’s more than 26% higher than current levels.

More

Gold prices to breach all-time highs, with some calling for $2,500 (cnbc.com)

Global Inflation/Stagflation/Recession Watch.

Given our Magic Money Tree central banksters and our spendthrift politicians, inflation now needs an entire section of its own.

European gas prices jumped nearly 40% on Australia supply fears — and analysts expect further rises

PUBLISHED THU, AUG 10 2023 7:42 AM EDT

Energy analysts believe the bullish momentum for European natural gas prices will persist over the coming months after futures jumped almost 40% on Wednesday.

Fears over possible supply disruption in Australia saw the front-month gas price at the Dutch Title Transfer Facility (TTF) hub, a European benchmark for natural gas trading, hit its highest level since mid-June on Wednesday.

It rose to an intraday high of more than 43 euros ($47.4) per megawatt hour before paring gains and extended losses on Thursday. The contract was trading at nearly 39 euros at around 12:30 p.m. London time (7:30 a.m. ET).

In the U.S., meanwhile, gas futures for September delivery on the New York Mercantile Exchange rose 6.6% on Wednesday to settle at $2.96, reflecting their best daily performance since mid-June and the highest closing price since early March.

The surge in gas prices came on news of a potential liquefied natural gas (LNG) facility strike at major plants in Australia as workers campaign for higher pay and improved job security.

Zongqiang Luo, gas analyst at energy consultancy Rystad Energy, said the price spike reflected the likelihood of the strike materializing, which would in turn impact LNG supplies during ongoing heatwaves despite ample gas inventories in Europe.

“The potential strike would be led by Australian workers at Chevron and Woodside Energy Group, which may interrupt four LNG facilities,” Luo said in a research note.

They added that the prospect of a strike could disrupt approximately half of Australia’s LNG export capacity and prompt many Asian buyers to try to source their LNG cargoes elsewhere.

China and Japan, for instance, purchased 26 million metric tons of Australian LNG combined in the first half of the year, Luo said, noting this accounted for over 60% of the country’s exports over the period.

“Looking ahead, we expect the bullish outlook for gas prices to continue with fewer LNG imports to Europe, planned maintenance for Norwegian pipelines and continued heatwaves in multiple regions globally,” Luo said.

More

European gas prices expected to rise amid Australia LNG supply fears (cnbc.com)

Wall Street Optimism Kicks Recession Talk Down The Road

Jeffrey Schulze  Aug 9, 2023,02:49pm EDT

Improving sentiment has led to a consensus among market watchers, who now expect a soft landing for the U.S. economy although much of the macro data continues to suggest caution. Monetary policy typically lags six to 18 months from an initial hike to a slowdown in activity, and it only became restrictive in late 2022, with the rise of real interest rates.

Coming into this hiking cycle, the U.S. Federal Reserve was far behind the curve – with nearly double-digit inflation and the federal-funds rate starting at 0% – so it is understandable that recession headwinds may need more time to coalesce.

Expectations of an imminent recession over the past few quarters were misplaced, yet we have long thought the potential timeframe for a recession would be in the second half of this year. It could slip to the first half of 2024, but recession remains the most likely outcome.

The soft-landing narrative took hold in mid-May, buoyed by an 11% rally in U.S. equities. Several high-profile Wall Street strategists capitulated, updating their outlooks to reflect a higher likelihood of a soft landing and/or raising their price targets for the S&P 500 Index.

The median year-end 2023 price target for the S&P 500 has risen from 4,000 in mid-May to 4,300 now, with targets raised by 14 of the 24 firms surveyed by Bloomberg. This coincided with the rally in U.S. equities and economic data reports that exceeded consensus expectations.

In July, the Bloomberg Economic Surprise Index reached its highest level since the initial post-lockdown recovery in the summer of 2020 and crossed into the top decile of its historical range – a level from which it often rolls over as a string of economic disappointments ensue.

The key drivers supporting a soft-landing scenario are debatable, and the recent run of improving economic data is certainly positive, but history shows that the U.S. economy often experiences sharp deteriorations in momentum as recessionary forces arrive.

Investors should keep in mind that resilient U.S. equity markets have checkered histories in correctly sniffing out recessions: in the six months before one began, stock markets delivered positive returns 42% of the time, and 25% of the time in the three months prior.

More

Wall Street Optimism Kicks Recession Talk Down The Road (forbes.com)

Covid-19 Corner

This section will continue until it becomes unneeded.

New COVID strain spreading across UK designated 'variant of interest' by WHO

August 10, 2023

A new fast-spreading COVID strain has been designated a "variant of interest" by the World Health Organisation.

EG.5 is descended from the Omicron variant of coronavirus and is growing in prevalence globally, including in the UK, US and China.

It has been detected in 51 countries in total, including South Korea, Japan, Canada, Australia, Singapore, France, Portugal and Spain.

In the week beginning 19 June, one in 13 cases were down to the COVID variant.

The latest data suggests it now accounts for 17.4% of cases - one in six - which the WHO described as a "notable rise".

However, it said the public health risk posed by EG.5 has been judged as low.

Maria Van Kerkhove, the WHO's technical lead on COVID-19, said EG.5 has an increased transmissibility but is not more severe than other Omicron variants.

"Collectively, available evidence does not suggest that EG.5 has additional public health risks relative to the other currently circulating Omicron descendent lineages," the WHO said in a risk evaluation.

"While EG.5 has shown increased prevalence, growth advantage, and immune escape properties, there have been no reported changes in disease severity to date," it added.

EG.5 includes subvariant EG.5.1 - which T. Ryan Gregory, a biology professor, has nicknamed "Eris" in posts on social media.

Last week, the UK Health Security Agency (UKHSA) said EG.5.1 now makes up one in seven new cases in the UK.

he WHO update comes amid a fall in COVID reporting.

WHO director-general Tedros Adhanom Ghebreyesus said only 11% of countries are reporting hospitalisations and ICU admissions related to the virus - hindering efforts to fight it.

He has urged countries to not let down their guard, and to continue reporting COVID data and offer vaccination.

COVID-19 has killed more than 6.9 million people globally, with more than 768 million confirmed cases since the virus emerged.

WHO declared the outbreak a pandemic in March 2020 and ended the global emergency status for COVID in May this year.

New COVID strain spreading across UK designated 'variant of interest' by WHO (msn.com)

Technology Update.

With events happening fast in the development of solar power and graphene, among other things, I’ve added this section. Updates as they get reported.

Spain’s Repsol granted €575m to rollout solar and wind plants

The financing from the EU bank will enable the company to install projects with a capacity of 1.1GW

August 10, 2023

Spanish energy company Repsol has been granted a €575 million (£496m) loan to support its rollout of renewable energy projects.

The financing from the European Investment Bank (EIB) will enable the company to install solar and wind power plants with a total capacity of 1.1GW.

The projects, which will be operational before the end of 2025, are expected to generate enough electricity to power around 645,000 households and help reduce more than 800,000 tonnes of emissions annually.

Repsol and the EIB have signed an agreement for the first tranche of the loan, which amounts to €400 million (£345m).

Repsol CEO Josu Jon Imaz said: “This new financing supports the company’s roadmap set out in the 2021-2025 Strategic Plan, aiming to reach 6GW of installed capacity by 2025 and 20GW by 2030. The EIB’s support endorses our goal of net zero emissions by 2050 and is further proof that we are moving in the right direction.”

Repsol has a global portfolio of 1.9GW of renewable energy projects in operation, most of which are in Spain.

Spain's Repsol granted €575m to rollout solar and wind plants - Energy Live News

Another weekend and another weekend of flooding and fires? A weekend to ponder on interest rates, inflation, recession, stagflation and gold. With double digit wage inflation just starting in the west and a fast growing property bust unfolding in China, H2 23 and all of 2024 presents a most challenging global economy.  Have a great weekend everyone.

The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.

 

Ludwig von Mises.