Tue. Oct 26th, 2021

Markvrae Updates

Is the US inflationary pressure increasing?

The latest consumer price index will be released on Tuesday, giving policymakers and investors fresh insight into how persistent concerns will drive higher inflation in the US.

Consumer prices have risen higher this year, with the rate of annual gains around a 13 years high from July. On a month-on-month basis, price increases have moderated somewhat, but now the focus is shifting to whether sectors outside the most vulnerable to pandemic-related disruptions, which have so far driven most of the higher inflationary pressures, are starting to register higher profits .

Consensus forecasts compiled by Bloomberg predict a 5.3% year-on-year rise in the August CPI index, in line with the rate of 5.4% recorded the previous month. As of July, prices are expected to have risen 0.4 percent, from 0.5 percent during the previous period. The core measures, which eliminate unstable items such as energy and food, will be 4.3 percent higher than in August 2020.

The year-to-year line-up change in CPI (%) showing a sharp increase in US inflation

“Within the CPI exemption, investors will want to see the shift from transition factors to more sustainable cost increases through an expansion of the higher pressure categories,” said Ian Lyngen, head of the US tariff strategy at BMO Capital Markets.

Analysts at RBC Capital Markets said they were keeping a close eye on housing-related prices. “One area that is ripe to start lifting seriously is the shelter component,” they wrote in a recent note, referring to a measure of rental levels.

“As we have said in recent months, this sector is offering a solid floor below core prices in the coming months as previous house price increases go through,” they said.

“This is not something that will move higher with a burst, but rather a gentle successive acceleration and then slightly increased,” the analysts added. Colby Smith

Is the price of iron ore falling?

After a stormy start to 2021, iron ore from the commodity leader has gone to the backlog.

At $ 160 a tonne in January, the steelmaking commodity rose to a record high of more than $ 230 a tonne in May before retreating sharply and ending at $ 128.75 last week, according to S&P Global Platts.

Erik Hedborg, chief analyst of iron ore at consultant CRU, says the same factor that caused prices to rise earlier in the year is now driving it down – Chinese demand.

“In the second quarter, we saw a record-breaking Chinese steel production,” he said. “Now we see that the demand does not disappear, but decreases fairly quickly.”

There are two reasons for a lower demand. The one takes declining margins at Chinese silent mills. This is partly due to lower steel prices and record domestic prices for coal – the other ingredient needed to produce steel.

At the same time, Beijing, which wants to keep steel production just over 1 billion tonnes flat this year, is taking a more active role in combating production as the end of the year becomes visible.

“We hear that the largest steelmakers in China are being targeted a little more to reduce production because they produced too much in the first half of the year,” Hedborg said.

Many of these large steelmakers are sitting on an excess of iron ore stock that they now want to sell to smaller producers. This in turn means that there are very few bidders when a large iron ore producer has extra volumes to sell in the spot market.

As stocks from Australia and Brazil increase until the end of the year as the southern hemisphere enters summer, traders have prepared themselves for further weakness, given the iron ore price remains above the 13-year average of $ 106 per tonne. Neil Hume

Is the UK labor market overheated?

In the early stages of the pandemic, policymakers’ main concern was to avoid mass unemployment. Now the Bank of England is more concerned that labor shortages could fuel inflation, if it leads to wage increases and price increases. This week’s job data will be a critical piece in the mystery for investors trying to figure out how soon the central bank can start scaling down the stimulus.

Last month’s figures show that unemployment has fallen 4.7 percent in the three months to June, with vacancies reaching record highs and wage growth increasing. Since then, there is growing evidence that employers in many sectors are struggling to hire, with acute shortages in areas such as truck driving, food processing and certain skilled roles in construction.

But there are also signs that some jobs may still be at risk as the government shuts down wage subsidies and other support schemes. Although there has been no clear increase in redundancy consultations, official figures show that 1.6 million workers were still laid off in mid-August, and that an increasing proportion of them are older or employed by small businesses.

The Bank of England says unemployment has already peaked, but some economists believe it is likely to rise when subsidies end, despite high vacancies, as it could take time for workers to find new jobs, especially if some have to switch.

Tuesday’s data will show whether there was an initial impact on jobs and wages in July, the month when the outflow scheme began to decline and when most restrictions on economic activity ended. Delphine Strauss

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