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The Inflation thread


kahuna1

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every Friday, I get an email from Naos

As part of the NAOS investment process, we pay particular attention to the comments made by company CEOs and business leaders in order to gain a greater understanding of the current investment environment and key trends that may be emerging. Below are quotes from the week which in our view detail some of the most important and prominent industry trends and economic factors impacting their businesses.
(to subscribe ... https://www.naos.com.au/subscribe )

 

 

 

There seems to be a persistent theme this week:

CEO Insights - Week Ending 9 April 2021 By NAOS Asset Management[/size]

Automotive

 

"This is the strongest March result in two years with private buyers representing the largest proportion of new vehicle purchasers" Tony Weber, CEO, Federal Chamber of Automotive Industries

 

"It's hard to know when the new car supply is going to continue to ramp up. I mean, they're obviously facing some major chip shortages. I think the supply, the tightening of the supply is going to be around here for a while" William Nash, CEO, CarMax Inc [uSA's largest used car retailer]

 

 

Transport & Logistics

 

"Reforms to address climate change are ushering in an era of modal shift for freight, from polluting and congested road travel to efficient higher speed rail service. This will drive significant growth in railcar demand in the years to come above and beyond replacement demand growth" Bill Furman, CEO, The Greenbrier Companies Inc [global manufacturer/repairer of railcars]

 

"Rail freight traffic has actually grown over pre-crisis levels in some countries" Bill Furman, CEO, The Greenbrier Companies Inc [global manufacturer/repairer of railcars]

 

"The spot rate on containers has gone up massively – there are less containers and less ships so there's more demand than supply" Andre Reich, CEO, The Reject Shop Ltd

 

Inflation

 

"No matter what commodity you look at, whether its poly[ethylene], resin, oil or gas, commodity prices are up and a lot of them impact raw material costs" Bernie Brookes, Exec Chairman, Colette [handbag & jewellery retailer]

 

"As we navigate the current environment, we are seeing input cost inflation accelerate in many of our categories and across the industry" Sean Connolly, CEO, Conagra Brands Inc [multinational packaged foods brands conglomerate including brands Birds Eye & Healthy Choice]

 

 

Tourism, Travel & Leisure

 

"Around 38 per cent of Australian tourism businesses have told us they're cutting jobs and reducing workforce hours to stay viable with the ending of JobKeeper, Sixty per cent of tourism enterprises are in a weaker position since COVID-19, 47 per cent remain open but have fewer staff, and the end of JobKeeper is having a major impact on exposed sectors" Simon Westaway, Executive Director, Australian Tourism Industry Council

 

"We've experienced significant latent demand upon opening new sailings this summer. In fact P&O [Cruises] opened to a single biggest booking day in seven years on the announcement of coastal sailings for its two ships this summer" Arnold Donald, CEO, Carnival Corporation [world's largest cruise ship company]

 

 

US Economy

 

"I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE [quantitative easing], a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the US economy will likely boom" Jamie Dimon, CEO, JPMorgan Chase & Co.

 

 

Technology

 

"As the market is showing optimism with regards to a potential COVID recovery, we are seeing demand returning from industrial customers" Mark Adams, CEO, SMART Global Holdings Inc [global computer memory & storage provider]

 

Insurance

 

"The global P&C [property & casualty insurance] industry is one of the most complex and highly regulated markets in the world…It's also an industry that is undergoing significant change with the entry of new competitors and increasingly sophisticated customers who now expect a simplified digital experience" Mike Jackowski, CEO, Duck Creek Technologies Inc [multinational insurance software provider]

 

 

Retail

 

"I think if you ask anybody that's providing a product these days, we've seen a seismic shift [to online] over the last 12 months" Gary Medved, CEO, Mace Security International inc [global manufacturer of personal safety & security products]

 

 

Commercial Property

 

"The golden days of landlords milking retailers is gone. This is a complete reset" Paul Zahra, CEO, Australian Retailers Association

 

"If customers are choosing to shop a brand in store in a shopping centre then, yes, that's a relationship with the landlord. If customers are choosing to shop online because we've invested tens of millions of dollars in infrastructure then landlords have nothing do with that" Mark McInnes, CEO, Premier Investments Ltd

 

 

Residential Property

 

"Given the environment of rising housing prices and low interest rates, the bank will be monitoring trends in housing borrowing carefully and it is important that lending standards are maintained" Dr Philip Lowe, Governor, Reserve Bank of Australia

 

Food & Beverage

 

"Psychology experts assert that it takes on average, 66 days for a new behaviour to become habitual…we are nearly 400 days into the COVID-19 pandemic. Consumers have adapted to at-home eating and formed new habits that we expect to sustain well beyond the current conditions and early data supports our hypothesis" Sean Connolly, CEO, Conagra Brands Inc [multinational packaged foods brands conglomerate including brands Birds Eye & Healthy Choice]

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The first hint of a jump in US inflation and what did all those brave souls among the bond bunnies do? Why they jumped sideways and sent US bond yields lower!

 

So much for the bond market being the all-powerful monster that would tame central banks post-Covid, as some alarmist writers of economic nonsense had been insisting as they fretted over quantitative easing, higher inflation and anything else they could lay their hands on.

 

The US Consumer Price Index jumped 0.6% in March, the largest gain since August 2012, after rising 0.4% in February. A 9.1% surge in fuel prices accounted for nearly half of the increase in the CPI. Petrol prices rose 6.4% in February. Food prices rose 0.1% as the price of potatoes unexpectedly rose and food consumed outside the home also rose 0.1%.

 

For the year March, the CPI surged 2.6%. That was the largest gain since August 2018 and followed a 1.7% increase in February.

 

And there’s the outbreak of inflation – shock horror, just as the talking heads had warned – but it passed without too much pain and bond yields eased afterwards.

 

Core inflation (excluding food and energy), rose 0.3% after up from 0.1% in February. That was the largest gain in seven months in the core CPI as the annual rate rose 1.6% after the 1.3% rise in February.

 

The Fed tracks the core personal consumption expenditures (PCE) price index for its 2% inflation target, (now a flexible average rather than hard target, a little like the flexible 2% to 3% over time target for the Reserve Bank.

 

The core PCE price index rose an annual 1.5% in February and judging by the core CPI, probably nudged a bit higher in March (we will find out in a fortnight).

 

The yield on the key 10-year Treasury bond ended down 5.6 basis points to yield 1.6198%, well below a 14-month high of 1.776% hit on March 30.

 

The Fed – especially chair Jay Powell, have been warning for a while that inflation will make a “transitory†jump mid year as the comparative base rolls over and the big falls a year ago drop out of calculations. The same is going to happen here as well, according to RBA governor, Phil Lowe.

 

Central banks want to see inflation rising because it shows the rebound from the Covid lockdowns is actually strengthening and the higher demand is increasing prices for goods and services.

 

Deflation or disinflation means weak demand, a lot of spare capacity in the economy and problems ahead for economies showing them.

 

The US isn’t one and nor is Australia or New Zealand (which left monetary policy on hold yesterday

 

https://www.sharecafe.com.au/2021/04/14/bon...n-edges-higher/

 

================

from our own sharecafe

 

 

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Seems that lots of people are starting to jump on the inflation bandwagon.

I would not have previously considered Al Jazera a source of economics 101, but the following article seems like its straight of of semester 1 in first year.

 

 

From Al Jazero

 

Commodities rose to their highest in almost eight years amid booming investor appetite for everything from oil to corn.

 

Hedge funds have piled into what’s become the biggest bullish wager on the asset class in at least a decade, a collective bet that government stimulus plus near-zero interest rates will fuel demand, generate inflation and further weaken the U.S. dollar as the economy rebounds from the pandemic.

 

Qatar Petroleum to supply 1.25m tonnes of LNG to Bangladesh

Petrobras shares drop as Brazil’s Bolsonaro slams pricing policy

Copper rises over $9,000 as supply tightens in pandemic recovery

Yellen’s yardstick: US Treasury chief sees unemployment as key

The Bloomberg Commodity Spot Index, which tracks price movements for 23 raw materials, rose 1.6% on Monday to its highest since March 2013. The gauge has already gained 67% since reaching a four-year low in March.

 

The day’s gains were helped by copper, which rose above $9,000 a metric ton for the first time in nine years. Oil also jumped on speculation that global supplies are rapidly tightening, while coffee and sugar advanced.

 

“Folks who have really ignored commodities for quite a long time are now starting to get positioned,†said Bart Melek, head of commodity strategy at TD Securities. “The implication is that this could go on for a bit. It’s very much a function of expectations of scarcity.â€

 

 

 

JPMorgan Chase & Co. said earlier this month that commodities appear to have begun a new supercycle — an extended period during which prices are well above their long-run trend. That echoes similarly comments from others including Goldman Sachs Group Inc. Commodities have seen four comparable cycles over the past 100 years.

 

The asset class is typically seen as a good hedge against inflation, which has recently become more of a concern among investors. The commodities rally will be a story of a “roaring 20s†post-pandemic economic recovery as well as ultra-loose monetary and fiscal policies, JPMorgan analysts led by Marko Kolanovic said Feb. 10.

 

Commodities may also jump as an unintended consequence of the fight against climate change, which threatens to constrain oil supplies while boosting demand for metals needed to build renewable energy infrastructure and manufacture batteries and electric vehicles, they said.

 

Copper is surging amid a broad rally in metals from iron ore to nickel. The bellwether industrial commodity has doubled since a nadir in March, also boosted by rapidly tightening physical markets and prospects for rebounding economic growth.

 

“The mega-trends that we see playing out around global population growth, the electrification thematic and the energy transition, all of these bode well for commodity demand over the medium-to-long term,†Mike Henry, the chief executive officer of mining giant BHP Group, said last week in a Bloomberg Television interview.

 

Commodities swings have huge impact on cost of living since they can encompass the price of fuels, power, food and construction projects. They also help shape terms of trade, exchange rates and ultimately the politics of commodity-dependent nations like Canada, Brazil, Chile and Venezuela.

 

A surge in silver buying continued Monday with spot silver and futures breaching $30 an ounce [File: Chris Ratcliffe/Bloomberg]

Silver rush: Dealers overwhelmed by demand for coins, bars

Dealers like Money Metals, SD Bullion, JM Bullion and Apmex saw unprecedented demand over the weekend.

1 Feb 2021

Japan's key share index jumped to its highest level since 1990 despite showing a slowing economic recovery from the depths of the coronavirus crisis [File: Noriko Hayashi/Bloomberg]

Asian shares at record highs on global vaccine hopes

Successful global roll-out of vaccines has raised hopes of a rapid economic recovery helped by large US fiscal stimulus.

15 Feb 2021

Analysts expect the cold snap in Texas to lead to continuing disruptions to oil supplies for some time more [File: Matthew Busch/Bloomberg]

Texas’s big freeze pushes oil prices to 13-month highs

Texas oil producers and refiners remain shut due to icy cold weather, cutting output by 1-4 million barrels per day.

18 Feb 2021

Pumpjacks operate in the snow in the Permian Basin in Midland, Texas, the United States, where weather has reduced the nation's refining capacity by one-fifth [File: Matthew Busch/Bloomberg]

Oil prices dip after surpassing $65 a barrel amid Texas cold snap

Brent crude had gained for four straight sessions before Thursday, while West Texas Intermediate had risen for three

.

 

Mick

 

 

 

 

 

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  • 1 month later...

US inflation data has been coming in higher than expected. Will it be the same in other parts of the world?

 

==========

what kimda question is that?? every man and his dog know that inflation is everywhere these days----given that much money has been printed from all central banks around world!! :weirdsmiley:

 

 

======================

Last week, inflation data came in hot for April in the US. However, since the beginning of the month, manufacturing and jobs data were weaker than expected. Is the inflation truly transitory, as the Fed says, or stagflation coming our way? This week, we’ll get a better view as more inflation data is released from around the world. In addition, as mentioned in the last Week Ahead, while some countries continue to battle with the coronavirus and a shortage of vaccines, others are in the middle of their re-openings. On Monday, the UK continues with their re-opening, while the CDC in the US said masks are no longer necessary for fully vaccinated people. And although earnings season is coming to an end, we’ll get earnings from big retailers in the US this week!

===========================

 

time to raised rate all you central bankers!! :o

 

 

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  • 2 months later...

The Beige Book

Prices increased at an above average pace, as seven Districts reported strong price growth and the rest saw moderate gains.

 

Pricing pressures were broad based and grew more acute in the hospitality sector, as the reopening of hotels and restaurants confronted limited supplies of materials and workers.

 

Construction costs remained high, but lumber prices reportedly eased a bit. Container prices returned to very high levels after having moderated in the spring.

 

Pricing power was mixed, as some contacts reported that high end user demand enabled them to increase their prices and others said that input price pressures had reduced their profit margins.

 

While some contacts felt that pricing pressures were transitory, the majority expected further increases in input costs and selling prices in the coming months.

https://www.federalreserve.gov/monetarypoli...ebook202107.htm

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  • 6 months later...

Headline inflation spiked to 3.5 per cent in the December quarter, smashing market expectations, while underlying inflation hit 2.6 per cent.

Annual price inflation of goods (up 4.3 per cent) surpassed that of services (up 2.3 per cent) in the December quarter and was the highest since 2008.

The ABS attributed the result to global supply chain disruptions and shortages, combined with rising freight costs and high demand, contributed to price increases across a wide range of goods including dwelling construction materials, motor vehicles, furniture and audiovisual goods.

Many of those factors are still thought to be temporary and expected to abate in the second half of 2022 as countries continue to recover from pandemic disruptions and consumers further pivot to services spending.

But at 2.6 per cent annual growth, underlying inflation, which also known as trimmed mean inflation and is the RBA preferred measure of price changes, is up 0.5 percentage points on the prior quarter result and is now well within the central bank’s 2 per cent to 3 per cent target band.

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  • 1 month later...

the current infatuation with inflation that doomsters seem to want to wish our way may well be totally revised as the Ukraine / Russia situation drags on.

One participant that I read, Miiles Staude, has used the GVF Half Year announcement to say:

Looking ahead, the key driver of asset price returns over the coming year will be how inflation, and thus interest rates, progresses from here. With current CPI prints of 7% and 5% in the US and Europe respectively, it is unsurprising to see some commentators beginning to make parallels to the 1970s, and the terrible toll runaway inflation took during that era. While such comparisons are attention grabbing, they seem to be poorly grounded arguments given what we know today. For one, it is clearly the case that much of the rapid rise in inflation we are seeing has come about from a base effect. Headline inflation prints are measures of inflation rates today versus this time a year ago, a time when the pandemic had greatly depressed economic activity. As prior year comparisons start to look more normal, it highly likely that the prints we are seeing today will noticeably fall.  
More relevantly, prior to the pandemic, the Gordian knot facing policy makers was the idea of ‘secular stagnation’. Economic growth had consistently disappointed in the decade following the Global Financial Crisis, and with this, inflation had been running at levels that were far too low for central banker comfort. The drivers of secular stagnation are not completely understood, but they include powerful forces such as the ageing of rich world societies, and technological innovations that are disrupting entire industries. Whether a global pandemic has suddenly wiped away the forces that have depressed inflation and growth for so long is a question that lands well above our paygrade. More important than the question itself, we believe, is how much uncertainty comes with any attempt to answer it. Today, the market is forecasting that inflation will fall back down almost as quickly as it has shot up. Yet it is still expected to settle roughly 0.5% to 1% higher than it was during the decade between the GFC and the Covid pandemic. If this turns out to be the case, then the gentle lift in interest rates that will follow may prove to be nothing more than a frustrating headwind that high-risk asset classes must work their way through. It should not spell disaster, rather, a more subdued level of future returns than investors have been accustomed to recently.  
The more troubling alternative to this future path is one where inflation does not slow as quickly or as much as is currently priced in. This could readily become the case if the current very high inflation numbers we are seeing begin to get baked into future inflation expectations, notably through higher wage demands. Under this scenario the outlook becomes much more fraught. Historically, central bank attempts to curb such inflationary cycles tend to end in recessions. At the very least it would imply far higher interest rates than what are expected today, and with this a significant derating of valuations across many asset classes.

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