Rising Inflation, US/China Summit & Covid Fears 2.0 (INDEXSP: .INX) – Weekly Market Report

The European stock market has just posted another week of gains due to corporate results. Wall Street was mixed. Investors’ risk appetite remains strong despite inflationary concerns that could cause central banks to reduce their monetary support prematurely. The new Covid wave in Europe is also causing concern.

S&P 500 11-15
The S&P 500 is soaring to new levels. Currently is pushing past R1 at 4700. Hasn’t touched the 200MA in over a year in a half.

Investors were waiting for the October inflation figures to be released. Wednesday, November 10, was marked in red. Investors remain concerned about overheating prices. They fear that the central banks will need to shut off liquidity to stop a slippage that could be too harmful to the economy.

Inflation in the United States was much higher than expected, with prices increasing by 0.9% in one month and 6.2% in one year. Although the market saw this as another problem for the Fed, the negative reaction in indexes was brief.

Rising inflation is not going away: The US central bank must, just like international counterparts, find the right balance between adding more funds and controlling overheating, as well as reducing the number of support programs.

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Jeff Gundlach, the Bond King, sees inflation exceeding 4% by 2022. However, many others continue to warn about stagflation (high inflation and stagnant growth). Greg Jensen from Bridgwater has warned about stagflation in the past, and he expects it will continue well into this decade. We saw inflation fluctuate over the 15 years between the late 1960s and the early 1980s. So even if inflation declines in 2022 or later we may still see an increase in inflation in the years ahead, especially with large spending bills from Congress.

Prominent financial figures and analysts expect rate increases to occur next year. This historically has a cooling effect on inflation. The Fed’s real problem lies in the fact that it will not raise interest rates too quickly if there is continued economic weakness. This would stop economic expansion from continuing.

If the Biden administration plans to fire federal contractors, small businesses, and the government over the vaccine mandate, then we’ll have another serious unemployment problem.

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We could be looking at stagflation. Raising interest rates would be a disaster. Higher interest rates mean more debt repayment difficulties for the Fed. Higher interest rates mean higher borrowing costs. It is possible that low-interest rates will eventually be achieved with a rate of inflation of 5-10% for a decade.

This would allow debt repayment to become more manageable. If the Fed is concerned about the viability and long-term viability of higher levels of debt, this could be the base case scenario. I continue to say that there are no good options for the Fed, but only difficult ones. This will be even more apparent next year.

Inflation causing price increases! Normally, November would see the reduction in asset purchases take center stage. We don’t want to forget about inflation in the U.S. anytime soon. We are reminded of the imminent threat of a decrease in liquidity at central banks, as CPI has reached all-time highs. These numbers and mixed results have caused the U.S. indexes to drop a little bit. However, equity markets are safe as long as there isn’t a rate increase on the horizon.

Speaking of the monetary response is changing and is not causing too much disruption to the equity markets at the moment. Bond markets are not affected, though the rate hike plan could accelerate. The US government bond pays 1.56% over 10 year, while the German Bund pays -0.25%. Therefore, we are very close to the levels from the week before.

ABS REPORT

The dollar’s currency rise continued. The dollar rose to USD 1.144747 per EUR 1. It rose to USD 1.1447 for EUR 1. GBP 0.747099 to USD 1 also saw the greenback gain ground against the British Pound.

The cryptocurrency market saw an episodic peak at $3 trillion this week before falling quickly below that level. Bitcoin is currently holding at $60,000, with historically good seasonality.

Next Tuesday will be all about October’s retail sales in the United States. A few speeches will be made by the central bankers of Europe and the US.

Key Drivers for the Week of Nov. 15th, 2021

TIP – This is a 1-minute brief bullet-point summary. It is a tool that gives investors and financial a fast and simple list of what to watch for and talking points for the week.

  • Rising Covid Cases in Europe, CA and North US
  • Rising Inflation & Prices
  • Christmas Shopping Season
  • Biden and China’s Xi Hold a Virtual Summit
  • Tuesday, November 16 – Retail Sales (October)
  • Wednesday, November 17 – Building Permits (October)

Key Events

Monday
Empire State Index for November (8:30 AM)
Energy Information Administration Monthly Oil Drilling Data (2 PM)

Tuesday
Retail Sales for October (8:30 AM)
Manufacturing, Industrial Production for October (9:15 AM)
Business Inventories for September (10 AM)
Fed Speak – Fed’s Barkin Speaks (noon)
Fed’s Daly Speaks (3:30 PM)

Wednesday
MBA Mortgage Applications (7 AM)
Preliminary Building Permits for October (8:30 AM)
Housing Starts for October (8:30 AM)
Energy Information Administration Crude Oil Inventory Data (10:30 AM)
Fed’s Bowman Speaks (11 AM)
Fed’s Waller Speaks (12:40 PM)
Fed’s Evans Speaks (4:05 PM)
Fed’s Bostic Speaks (4:10 PM)
ECB’s Lagarde Speaks (8:20 PM)

Thursday
Leading Indicators for October (10 AM)
Kansas City Fed Manufacturing Index for November (11 AM)

Friday
Fed’s Waller Speaks (10:45 AM)
Fed’s Clarida Speaks (12:15 PM)
Baker Hughes Rig Count Data (1 PM)

Stock Market

Tesla electric cars: Tesla’s shareholders were subject to a new prank from Elon Musk. He declared his intention to sell 10% shares in the company to the poll. The leader of Tesla’s shares has sold for $ 5 Billion in shares shortly after a positive vote, which saw the stock drop 15% in just two sessions. Other sales are planned to comply with the survey. Rivian successfully completed its IPO in the same sector. The company was valued at $105 billion two days after its IPO. This is almost the same amount as Daimler which sold more vehicles in the first 30 minutes of the company’s existence.

Johnson Matthey: The specialist in precious metals and fine chemicals for advanced applications caught everyone off guard when it announced that its battery business was being sold due to unbeatable competition. The company’s premium for “electric vehicles” has been melted away, and the stock price has fallen 19% in one session.

Sika: The share price has recovered 10% in a week following the announcement of the acquisition of MBCC, a former BASF subsidiary. Investors were not scared by the 5.5 billion Swiss Francs price tag. They are confident that the Swiss group will succeed with the integration. This is the largest acquisition made by Sika in its history.

Beyond Meat: The American producer of vegetarian steaks posted yet another disappointing result. It saw its stock drop by 20% for the week. Being fashionable can’t keep a stock afloat when you are highly valued.

Commodities/AG

Oil prices have stagnated this week due to the lack of bullish catalysts. OPEC also reduced its forecast for oil demand growth in the year ahead of a feverish recovery in India and China. Traders are closely monitoring the Biden administration’s statements, as the U.S. could tap into its strategic reserves and push prices lower. Brent crude oil is currently trading at USD 82, while WTI barrels are USD 80.7.

Gold-holders can now smile again. The USD 1720-1830 zone where the ounce of gold was held since June has been released. The US consumer price data were shocking, which boosted the price of this barbaric relic that is considered a hedge against inflation. Silver is trading at USD 25, while gold is currently trading at USD 1,855. Industrial metals are also seeing a rise.

The impact of electricity rationing in China on some areas of base metal production is still affecting their production, driving prices higher. Copper is currently trading at USD 9850 per tonne, while nickel is at USD 19800 and aluminum at USD 2645 respectively. The highest annual price for wheat in agricultural commodities was 800c/bushel in Chicago.

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