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Mortgage Rates Are Rising, Adding to Inflationary Costs

Mortgage Rates Are Rising, Adding to Inflationary Costs

Mortgage rates are rising again, fueled by concerns about growing inflation

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 3.85 percent in the week ending March 10, up from 3.76 percent the week before.

Fears of inflation and geopolitical uncertainty are both having an effect, according to Freddie Mac’s senior economist, Sam Khater.

“We expect rates to continue to climb in the long run as inflation broadens and shortages affect more sectors of the economy,” Khater added. “However, rate volatility is being driven by concern regarding the crisis in Ukraine, and this is likely to persist in the immediate term.”

According to George Ratiu, Realtor.com’s manager of economic analysis, the 30-year rate returned this week following a surge in the 10-year Treasury, which exceeded 1.95 percent.

“Investors are concerned about rising inflation as a result of a possible restriction on Russian oil imports, since the price of US crude has risen to almost $130 per barrel, the highest level in 13 years,” he added.

Inflation rose at its quickest rate in 40 years in February, raising fears of a consumer spending slowdown in the months ahead, according to Ratiu.

Last month, prices continued to rise, pushing a key inflation indicator to levels not seen since January 1982.

All eyes are on the Federal Reserve, which will meet next week and is likely to raise the federal funds rate in an effort to keep inflation under control.

“The key concern on many analysts’ minds is whether a 25-basis-point raise would be sufficient given the considerable labor shortage and inflation at levels not seen since the 1980s,” Ratiu said.

As the spring sales season heats up, the real estate market continues to see rising prices and record low inventories.

According to Realtor.com, a buyer of a median-priced property today faces a mortgage payment that is more than $290 per month more than a year ago.

“With a shortage of homes for sale, both first-time buyers and homeowners searching for a trade-up property are trapped by rising prices and borrowing rates,” Ratiu explained. “The actual problem for Americans is that rising inflation is eroding pay and salary growth, on top of rising housing and living expenditures.”

With rising inflation increasing costs and decreasing the buying power of the consumer paycheck, it’s only a matter of time before something breaks.

Mortgage Rates Are Rising, Adding to Inflationary Costs

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The FED to Shrink Its Balance Sheet, Plunging Economy into Recession

The FED to Shrink Its Balance Sheet, Plunging Economy into Recession

The FED’s bond purchases from their qualitative easing program
has provided liquidity to the markets.
They’re pulling that back now – it could crash the stock market and plunge the economy into recession if done too quickly

Members of the Federal Reserve are arguing how swiftly the central bank should shrink its bond portfolio without triggering a recession.

The Federal Reserve’s asset balance is about $9 trillion as of the second quarter of 2022. The majority of these assets are government debt and mortgages that have been securitized. The majority were bought to reassure investors amid the subprime mortgage crisis of 2008 and the pandemic of 2020.

“What’s occurred is that the balance sheet has evolved into a policy instrument.” Former Vice Chairman of the Federal Reserve Board of Governors Roger Ferguson told CNBC. “The Federal Reserve is using its balance sheet to achieve unprecedented results.”

The Federal Reserve of the United States has traditionally utilized its role as a lender of last resort to inject liquidity into markets in times of crisis. When the central bank purchases bonds, it may encourage investors to pursue riskier investments. Despite difficult economic conditions for small firms and regular employees, the Fed’s actions have benefited US stocks.

According to Kathryn Judge, a Columbia Law professor, the Fed’s stimulus is like lubricant for the financial system’s wheels. “There are fears that if they apply too much grease too frequently, the whole machinery would become risk-seeking and vulnerable in other ways,” she told CNBC in an interview.

Analysts fear the Fed’s decision to raise interest rates in 2022 before rapidly shrinking its balance sheet might trigger a recession if riskier assets are revalued.

But the FED doesn’t have a lot of options that won’t rock the stock market boat when it comes to fighting runaway inflation.

The FED to Shrink Its Balance Sheet Plunging Economy into Recession

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S&P Rebounds & Oil Increases as Investors Jump Back Into The Markets

S&P Rebounds & Oil Increases as Investors Jump Back Into The Markets

Following the S&P 500’s worst day since October 2020, stocks fluctuated dramatically on Tuesday, as investors remained cautious due to continuing geopolitical uncertainties and rising commodities prices.

After surging 586 points to its session high, the Dow Jones Industrial Average recently traded up 100 points. After soaring as high as 1.8 percent, the S&P 500 gained 0.2 percent. After sliding into bear market territory the previous day, the Nasdaq Composite gained around 0.5 percent.

Investors are still assessing rising commodity prices and sluggish economic development as a result of Russia’s invasion of Ukraine. Rising costs for oil, gasoline, natural gas, and precious metals such as nickel and palladium are raising fears of a global recession as inflation rises.

On Tuesday, WTI crude oil soared as much as 7% to $128 a barrel after President Joe Biden said that the US will restrict Russian oil imports. Oil prices soared to a 13-year high of $130 a barrel to start the week.

Due to rising oil prices, the energy industry was a bright spot on Tuesday. Chevron and Exxon both saw their stock prices rise by 5% and 2.5 percent, respectively. Plus, when oil prices continued to increase, investors’ attention switched to alternate energy sources, solar and other renewable energy companies rose. Enphase Energy and SunPower both increased by 14% and 21%, respectively.

Airlines and cruise lines made strides as well. Delta Air Lines increased by 6%, while American Airlines increased by more than 9%. Southwest Airlines and United Airlines were both up 7%. Norwegian Cruise Line’s stock also increased by more than 7%.

Tuesday’s “bounce was a small victory that the low may be in,” said Jim Paulsen, chief investment strategist for the Leuthold Group. “However, it may have to be tested again later today or later this week,” he added.

Brent crude, the international benchmark, hit a high of $139.13 per barrel overnight Sunday before settling at $123.21 per barrel, its highest level since July 2008. Brent was recently trading at $126, up 2%.

Consumers’ wallets are already feeling the effects of the crude price increase. According to AAA, the national average for a gallon of regular gas rose to $4.173 on Tuesday. The previous high was $4.114, which was set in July 2008 and was not adjusted for inflation.

Other commodity prices have also begun to rise again. On Tuesday, nickel prices briefly surpassed $100,000 per metric tonne, setting a new high.

Palladium futures, a critical metal in the electronics industry, gained another 5% to $3.04 an ounce, while platinum futures jumped over 3% to $1,149.70 an ounce.

“Perhaps there’s some relief that only the US is immediately shutting off Russian oil/gas, whilst the UK and EU are implementing their plans over several quarters. Furthermore, while the majority narrative on Russia/Ukraine is pessimistic, the components for a ceasefire are coming together,” stated Vital Knowledge founder Adam Crisafulli.

Treasury rates were also considerably higher, with the benchmark 10-year note rising almost 10 basis points to 1.85 percent as investors sold Treasuries amid rising inflation worries. Yields move in the opposite direction of price.

The move followed a sharp sell-off on Wall Street, with the S&P 500 dropping about 3% for its worst day since October 2020. The blue-chip Dow fell over 800 points for the sixth time in six sessions, while the Nasdaq Composite, which includes many of the market’s top tech firms, fell 3.6 percent, sliding into bear market territory, down 20% from its November peak.

Investors remained on the lookout for new developments in the escalating global tensions. Ukraine claims that Moscow is attempting to exploit the cease-fire agreement by allowing only Ukrainian citizens to flee to Russia and Belarus.

Shell has apologized for buying cheap Russian oil and said that it will sell all of its hydrocarbon interests in Russia. Russia has warned that if Western nations impose an embargo on petroleum exports, prices may rise to $300 per barrel. Shell’s stock increased by 3% on Tuesday.

With rising inflation and the war in the Ukraine, costs and tensions continue to escalate.

 

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S&P Rebounds & Oil Increases as Investors Jump Back Into The Markets

Wall Street Thinks Consumers Are Screwed

Wall Street Thinks Consumers Are Screwed

Wall Street shows where the market is headed as they short the retail sector… hard

Is the American shopper on the verge of tapping out?

Some Wall Street investors tend to believe that buyers are burnt out and have nothing left to spend.

According to a research released this week by S&P Global Market Intelligence, short selling in consumer stocks — effectively betting on the sector’s share prices falling — has reached a new high since January 2021.

“As of mid-February, the consumer discretionary sector remained the most-shorted sector, as short sellers continued to wager that skyrocketing inflation would eat into demand for nonessential products,” the S&P analysts wrote in the report.

This year, retailers Big 5 (BGFV) and Citi Trends (CTRN), electric vehicle charging company EVgo, plant-based food provider Beyond Meat (BYND), and dental braces producer SmileDirectClub have all been aggressively shorted (SDC).

The market is plainly concerned about whether consumers can endure future increases in oil and other commodity costs, as well as the Federal Reserve’s projected interest rate hikes.

The SPDR S&P Retail (XRT) and Consumer Discretionary Select Sector SPDR (XLY) exchange-traded funds have both lost almost 15% this year – falling way more than the rest of the market.

Inflation took a toll on Christmas shopping, resulting in a drop in consumer spending in December.

“The month of December was not especially favorable for retail,” said Phil Orlando, Federated Hermes’ chief equities market analyst. “And I’m being generous. It was a disaster.”

Although spending increased in January, Orlando claims that a large portion of the increase was attributable to the usage of Christmas gift cards, which are reported as retail sales when redeemed.

And now that energy prices are soaring, consumer spending may suffer much more.

With that in mind, Orlando believes consumer stocks will continue to suffer, particularly as increasing gasoline and gas prices, along with the likelihood of higher interest rates, are weighing on consumer confidence.

Furthermore, the pandemic’s stimulus checks have run out.

As a result, consumers would have to either take on additional debt or dip into their savings to maintain their current spending habits.

Orlando figures that the average consumer doesn’t have much buying ammunition left – if any at all.

The result? Retail stocks could crash & burn if consumer spending slows.

“Stocks are not going to recover in a couple of months,” said Phillip Toews, CEO of Toews Asset Management.

“The bear case was that, because to high inflation and increasing interest rates, we would be headed for a bear market before the [Russian] invasion,” Toews said. “Energy prices are now skyrocketing. Consumer equities may be part of a larger sell-off.”

Simply put: Consumer spending is what keeps the economy afloat.

If that’s cut off because of inflation and rising interest rates, the party could very well stop… plunging the economy into a full-blow recession.

Wall Street Thinks Consumers Are Screwed

 

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Wall Street Applauds Powell’s Interest Rate Plan

Wall Street Applauds Powell’s Interest Rate Plan

Powell Suggests a Tiny Interest Rate Increase,
Wall Street’s Ecstasy Pushes The Market Higher

Investors stopped worrying about Russia after Jerome Powell’s remarks on an interest rate hike.

And in the absence of their fear, the party resumed with The Street signaling their high praise of Jerome Powell’s as index prices shot higher.

 

Stocks surged on Wednesday after Federal Reserve Chair Jerome Powell told the House Financial Services Committee that the Fed will likely hike interest rates by a quarter-point next month.

He stated, “I’m inclined to recommend and support a 25 basis point rate rise.”

In late morning trade, the Dow was up roughly 550 points, or 1.6 percent. The S&P 500 climbed 1.5 percent, while the Nasdaq gained nearly 1%.

Investors were concerned that the Fed was going to hike rates more aggressively in response to inflation fears, particularly since oil prices have risen as a result of Russia’s invasion of Ukraine.

Powell, on the other hand, calmed the nerves of his favorite market on Wednesday with his low interest rate increase prediction.

Wall Street couldn’t have received any better news.

Of course, a quarter point bump in interest rates is unlikely to do anything to help curb runaway inflation.

It’s likely Powell’s choosing this route to show he’s still interested in combating inflation but without shutting down the markets full stop with a big interest rate bump.

 

Wall Street Applauds Powell's Interest Rate Plan

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Energy Prices Spike: Natural Gas +60%, Oil The Highest Since 2014

Energy Prices Spike: Natural Gas +60%, Oil The Highest Since 2014

As the Russian military rolls closer to Kyiv,
crude and natural gas spike to eye watering levels as the world fears a supply shock.

On Wednesday, as Russia’s increasing military assault in Ukraine raised fears of a supply shock, global crude oil prices soared to more than $110 per barrel and natural gas prices soared to a new high in Europe.

Brent oil futures, the worldwide benchmark, increased by over 9% to $113.65 per barrel, the highest since 2014. Oil futures in the United States rose more than 8% to $112.25 a barrel. Wholesale natural gas prices in Europe soared by 60% to a record high of €194 ($215) per megawatt hour.

This is more than double what it was on Friday.

Louise Dickson, senior oil market analyst at Rystad Energy, stated, “The market fear is here. The first higher price reaction following the commencement of the crisis in Ukraine six days ago is just becoming stronger.”

Western sanctions imposed in the aftermath of the invasion of Ukraine have not directly affected Russia’s energy resources. However, if Russia continues its offensive, the US and Europe may be forced to play this major card.

On Wednesday, White House press secretary Jen Psaki told CNN, “It’s still on the table, it’s not off the table.”

President Joe Biden, on the other hand, does not want to “topple the global oil markets or the global marketplace, or harm the American people more with increased energy and gas costs,” according to her.

Moscow is already finding it more difficult to sell supplies of Russian crude oil to merchants and refineries concerned about getting caught in the crossfire of financial-system penalties. Tanker operators are apprehensive of the threat to ships in the Black Sea, and large international oil firms are abandoning operations there.

brent crude oil price

According to Commerzbank analysts, Russia’s hallmark Urals oil grade was selling at a $18 per barrel discount to Brent crude on Wednesday as customers ignored Russian supplies. According to the researchers, the discount hasn’t been this large since the Soviet Union’s demise.

“Oil price differentials indicate a clear reticence to buy Russian crude,” said Shin Kim, head of oil supply and production research at S&P Global Commodity Insights. “There remains to be [a] danger of new sanctions that might indirectly or directly damage oil purchases or supplies.”

Despite efforts by the West to calm markets, the enormous price increases risk stoking already high global inflation. The United States and 30 other International Energy Agency members approved the release of 60 million barrels of emergency oil reserves on Tuesday, enough to replace about two weeks of Russian oil supplies.

“In the end, this will not be enough to calm the market. It’s a band-aid approach, to be sure.” RBC Capital Markets managing director of global energy strategy Michael Tran said.

Fuel will become more costly throughout the world as a result of the massive price hikes, raising the cost of travel and commuting. They will also raise inflation and may slow economic development, making choices by global central banks to combat increasing prices more difficult.

Investors fear that as a result of the crisis in Ukraine — a critical pipeline route, more Western sanctions that might target Russia’s economy, or retaliation by Moscow — Russian energy exports could be reduced or terminated.

“Buyer interest in Russian oil is dwindling,” according to Commerzbank analysts. “An interruption of Russian oil shipments looks to be increasingly priced in,” they noted.

According to Alex Froley, a market analyst with Independent Commodity Intelligence Services, Russian natural gas is still flowing to Europe. However, he stated that there is “a lot of ambiguity and fear about how things may evolve.”

According to Froley, the United Kingdom has blocked Russian-owned and controlled ships from entering British ports, potentially disrupting liquefied natural gas supplies from Russia, which account for between 3% and 4% of the country’s gas supply.

“Traders may be apprehensive if continental Europe follows suit and imposes a similar embargo on Russian ships,” he warned.

OPEC Sitting On Their Hands

On Wednesday, the Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia, decided to adhere to their plan of gradually adding oil to the market, despite demand from developed nations to do more to lower prices.

In a statement, the Saudi-led group OPEC said it will boost supply by 400,000 barrels per day in April, a small fraction of Russia’s 10 million barrels per day crude oil output.

“Recent oil market fundamentals and consensus on its forecast pointed to a well-balanced market, and current volatility is triggered by current geopolitical developments rather than changes in market fundamentals,” OPEC stated.

More Iranian barrels might be put on the market as a result of nuclear talks between Iran and the US, but this would not help the situation in the short term.

Toxic Investment: The Exodus From Russia

Many of the world’s largest oil firms are pulling out of Russia or deferring new investments in exploration and development projects.
ExxonMobil said on Tuesday that it was abandoning its last project in Russia, Sakhalin-1, which was characterized as “one of Russia’s largest single international direct investments.”

The project was operated by an Exxon affiliate, and the company’s decision to exit Russia after more than 25 years would mark the end of the company’s involvement in the country.

BP, Shell, and Norway’s Equinor all said this week that they plan to quit their Russian operations, which would cost them billions of dollars. TotalEnergies, a French energy company, has ceased fresh investment.

Energy Prices Spike Natural Gas 60 Oil The Highest Since 2014

 

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Powell’s Dilemma: Damned If You Do, Damned If You Don’t

Powell’s Dilemma: Damned If You Do, Damned If You Don’t

Congress expects Powell to fight inflation,
but to do that he has to raise interest rates which will tank the stock market.

Time to fire up the FED’s trusty rhetoric machine to keep everyone happy.

At a time when markets anticipate the Fed to do less, Federal Reserve Chairman Jerome Powell is expected to tell Congress this week that the central bank will do more to manage inflation.

Fears of a Russian invasion of Ukraine have caused financial markets to tremble, and Wall Street has discreetly lowered its expectations for Fed action.

Markets had expected the Fed to hike interest rates seven times in 2022, but current pricing suggests just five movements. This would imply raising the Federal Reserve’s benchmark short-term borrowing rate by around 125 basis points, to a range of 1.25 percent to 1.5 percent.

Powell will have to walk a tightrope as he testifies before Congress during two days of hearing that his institution is devoted to managing inflation while also keeping an eye on global turbulence.

“He’ll have to thread a very fine needle. It’ll be a difficult balancing act,” said Mark Zandi, chief economist of Moody’s Analytics. “My impression is that he starts with the uncertainty that this all generates, given that the Russian invasion may go in a variety of directions, each one worse than the last. He’ll emphasize that in such a tumultuous era, it could make sense for the Fed to be a bit more careful in implementing policy.”

Markets had been anticipating 25 basis point rises from the governing Federal Open Market Committee at each of its remaining seven sessions this year until about a week ago. At the March 15-16 meeting, there was even a significant tendency toward the initial step being 50 basis points.

At least for the time being,  it would seem that Russia’s invasion has taken that option off the table.

“His best message would be to play it by ear,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, says that Powell’s best move would be to tell everyone that he will “play it by ear.” Boockvar thinks this will let him escape the difficult position he finds himself in right now, while using the Russian invasion as an excuse to see where the economy goes from here, before they will buckle down and deal with inflation.

After all, the can has been kicked down the road for years now… what difference will waiting a couple months longer make?

Economists forecast robust growth this year, but a little lower than in 2021, which was the greatest since 1984. In December, Fed policymakers predicted that GDP would grow at a 4% annual rate in 2022.

However, the Fed’s policy outlook is complicated by persistent inflation, which is at its highest level in 40 years, as well as the possibility that the Russia-Ukraine scenario would add to inflation and further disrupt supply chains.

“We’re approaching a stagflationary moment,” Boockvar added, alluding to high inflation and slow growth. “The issue is whether [Powell] is more concerned with the’stag’ or the ‘flation’?”

The Fed has largely focused on growth after the Volcker style era of handling monetary policy.

Other Economists Aren’t So Sure

Goldman Sachs said in a letter to clients on Sunday that this year’s “quite strong inflation” “should create an easy case” for seven rate rises.

The market has been a bit too quick to price-out the potential for a 50 [basis point] hike at this month’s FOMC meeting, according to Citigroup economist Andrew Hollenhorst on Tuesday.

Nonetheless, according to the CME Group, as of Tuesday midday, the market had fully discounted a half-percentage-point increase and had given a small chance to no movement at all.

Because futures pricing is variable, the odds of a reversal might occur if inflation slows or the Ukraine issue is addressed.

Powell will have to confront a wide variety of opinions on where the Fed should be at a key moment for monetary policy when he delivers his obligatory semiannual briefing before a House panel on Wednesday and then to a Senate committee on Thursday.

“We believe Powell will stress that, despite increased geopolitical uncertainty, the Fed remains focused on its macro objectives and will continue to move forward with policy normalization with the goal of bringing inflation back to target while maintaining employment,” says Krishna Guha, Evercore ISI’s head of central bank policy strategy.

“We believe he will recognize that the Russia-Ukraine conflict, with its stagflationary push from higher energy prices (inflation higher, growth lower), presents new policy concerns,” Guha said.

Regardless of the outcome, both sides expect Powell to take action.

But any course of action he takes will come with significant risks.

Delaying and hoping for things to cool off is his most likely move.

 

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Powells Dilemma Damned If You Do Damned If You Dont

Retaliation: Will Russia Strike Back & Weaponize Oil?

Retaliation: Will Russia Strike Back & Weaponize Oil?

Russia is on the verge of a full-fledged financial crisis
– but will it strike back against sanctions?

Sanctions imposed by the West have driven the ruble to new lows, shut down Moscow’s stock exchange, and rendered Russian assets poisonous on the global arena.

The White House has even targeted Vladimir Putin’s financial fortress, blocking access to at least a portion of Russia’s $630 billion rainy-day reserve, which was created to cushion the economic impact of this catastrophe.

The key issue now is how Putin, who is now facing Western sanctions on his own riches, will respond in what is quickly developing into economic warfare.

There are rising fears that Putin would react by using crude oil as well as natural gas as a weapon against the West.

In a study released Monday, Louise Dickson, senior oil market analyst at Rystad Energy, said, “Russia’s energy supplies are very much at danger, either owing to being withheld by Russia as a weapon or taken off the market due to sanctions.”

Oil production was already falling short of demand throughout the world.

If Russia, the world’s second-largest oil supplier, deliberately held back supplies, oil prices would undoubtedly increase, causing a devastating blow to consumers throughout the world.

JPMorgan has predicted that if Russia’s exports are halved, oil prices will rise to $150 per barrel. That would represent an almost 41% gain from the current high of about $106 per barrel.

oil production

This jump would also result in a significant increase in petrol costs. According to AAA, the national average cost regular gasoline in the United States is currently $3.61 a gallon. This is an increase of 8 cents in a week and 25 cents in a month.

Even though the US consumes relatively little Russian oil — imports from Russia totaled barely 90,000 barrels per day in December — this is still a global and linked economy.

Supply shocks in one section of the world can have a global influence on pricing.

“It’s a wild card whether Russia would really impede those flows to attempt to inflict pain through commodities,” said Ryan Fitzmaurice, Rabobank’s energy strategist. “If there are genuine supply problems, it will be the catalyst for significant price rises.”

To be clear, there is no indication that Russia is cutting off the world’s oil supply at this time.

And, in the aim of reducing market damage, the West has gone to great lengths to exempt Russia’s energy sector from sanctions. Putin may determine that this is one weapon that should be avoided.

Russia Needs the Cash Generated from Oil Sales

It wasn’t long ago that it was thought that Putin would use oil as a weapon.

Such a plan runs the danger of further enraging the rest of the globe. Worse, restricting oil exports would jeopardize Russia’s petro-central economy. Between 2011 and 2020, oil and natural gas accounted for around 43% of the Russian government’s yearly income.

Inflation will be worse than expected this year, according to Goldman Sachs.

The Russia-Ukraine issue, on the other hand, has swiftly intensified, resulting in the biggest schism with the West since the Cold War.

Putin’s harsh posture and words have astonished onlookers, leaving some to doubt his mental soundness and raise fears about how he would respond to the new sanctions.

Putin raised eyebrows by putting his nuclear troops on high alert over the weekend. On Monday, he slammed sanctions imposed by the “empire of lies,” as he put it.

Putin is also under pressure from the oligarchs who back him up. In recent days, Russian billionaires Mikhail Fridman and Oleg Deripaska defied the Kremlin and called for an end to the conflict.

Natasha Kaneva was encouraged by the fact that Russia had a long history of supplying oil reliably, even during the Cold War, and saw minimal risk of the nation weaponizing its oil exports. However, Kaneva, JPMorgan’s head of global commodities research, is no longer so sure.

“I grew quite anxious after listening to Putin’s address,” Kaneva told CNN last week, referring to the Russian president’s hour-long speech on February 21 in which he laid out a laundry list of grievances with the West. “It was a turning point for me. Everything seemed to have altered.”

Investors, according to the JPMorgan executive, are underestimating the danger that Putin will weaponize oil supply.

“There is no need for any market disturbance,” Kaneva added. “There are no shock absorbers in our vehicle. The price will react in a nonlinear manner.”

Putin is well aware of all of this.

The fact that high fuel prices are profoundly unpopular in the US, leading to the worst inflation in nearly 40 years, isn’t helping matters.

“Putin might strive to inflict severe pain on Western nations,” RBC Capital Markets’ Helima Croft said in a note to clients on Sunday, “and commodities prices may feel the effect of his countermeasures.”

Mike Sommers, CEO of the American Petroleum Institute, an oil-and-gas trade group, did not exclude the possibility of Russia restricting oil shipments.

In a phone interview with CNN last week, Sommers said, “I do believe it’s an ongoing issue, particularly as the West responds to Russia’s aggressive conduct. If he decides to shut off supply, we will be concerned. In this tumultuous political context, no matter what he does, the United States will continue to create.”

The White House Tells Putin NOT to Weaponize Oil

(But does telling someone NOT to do something make them more likely to do that very thing?)

Putin does not need to fully shut down the taps to punish the West. Oil markets are so tight that even a little reduction in Russian supplies might have a significant influence on pricing.

“Even if Russia decreased supplies by 10% to 20%, the price reaction would compensate Russia for the supply loss,” Fitzmaurice of Rabobank said.

The White House advised Putin against taking any dramatic measures to protect his country’s oil exports even before the invasion began.

“It would be a tremendous mistake if Putin decided to weaponize his energy supply,” Daleep Singh, the US deputy national security advisor, said on CNBC.

As a consumer of energy, Russia is “very reliant” on the West, according to a Biden Administration official.

“For President Putin, this is a long-term weakness. If he weaponizes energy supplies, it would simply hasten Europe and the West’s diversification away from Russian energy,” Singh said, calling it a “huge miscalculation.”

A huge miscalculation it may be, but with European & Western economies still incredibly reliant on oil, any price increases will cause immediate and far-reaching economic pain.

And with Putin backed into a corner, who knows where this will lead.

But there looks to be no relief in sight when it comes to rising costs and supply chain issues.

Retaliation Will Russia Strike Back & Weaponize Oil

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Commodities Skyrocketing: Trading on Wheat Halted

Commodities Skyrocketing: Trading on Wheat Halted

With the continuation of Russia’s war on Ukraine, commodity prices are hitting their highest levels since 2008.

Wheat prices soared to their highest levels in more than a decade on Tuesday, as traders worried about global supply disruptions as Russia’s invasion of Ukraine progressed.

Wheat futures hit a high of 984 cents a bushel on Tuesday, the highest level since April 4, 2008, when wheat hit a high of 985.5 cents per bushel.

The grain was traded “limit up,” which refers to the maximum amount a commodity’s price can rise in a single day. Wheat was trading at 982.75 cents per bushel at 8:44 a.m. ET, up 5.22 percent.

According to JPMorgan, Russia is the world’s largest exporter of wheat, with Ukraine being among the top four.

According to Bank of America, 17 percent of the 207-million-ton worldwide wheat trade comes from Russia, while 12 percent comes from Ukraine.

In a Feb. 14 note, JPMorgan’s Marko Kolanovic said, “Wheat and corn are the most susceptible agriculture commodities to any possible increase in hostilities.”

Corn futures also touched a high of 724.5 cents per bushel on Tuesday, the most since May. Corn futures last traded at 721.75 cents a bushel, up 4.49 percent, after trading was suspended.

Russia’s war on Ukraine has sparked huge price increases in the commodities markets, after having been virtually dormant for decades.

To see commodities halted for hitting the limit up stop is incredibly rare and will add even more fuel to the inflationary fire we’ve already begun to see.

 

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Commodities Skyrocketing Trading on Wheat Halted

Goldman Sachs: Inflation’s Gonna Be Worse Than You Think

Goldman Sachs: Inflation’s Gonna Be Worse Than You Think

Goldman Sachs: Inflation will be worse than originally thought.

In a recent statement, Goldman Sachs warns that high inflation in the United States may not drop off later on in the year – as had been previously forecasted.

“The inflation situation has deteriorated this winter, as we originally thought, and the extent to which it will rebound later this year is now in doubt,” Goldman Sachs analysts said in a client note published late Sunday.

In light of this uncertainty, Goldman Sachs has raised its inflation forecast. Core PCE inflation (the Fed’s preferred pricing index) is expected to slow to 3.7 percent by the end of the year, according to the report.

That’s up from Goldman’s earlier projection of 3.1 percent, and nearly double the Federal Reserve’s target of 2%.

Consumer prices, which climbed to a near-40-year high of 7.5 percent on an annualized basis in January, are now expected to fall to 4.6 percent by the end of this year and 2.9 percent by the end of next year, according to Goldman.

The Wall Street bank expressed “growing anxiety” about two primary inflation risks: inflation expectations and the extremely robust labor market.

The rise and peak of inflation may have lasted long enough to further increase inflation expectations in a way that feeds back to wage and price setting, the firm reported.

And, according to Goldman, if the Russian invasion of Ukraine causes energy costs to skyrocket or affects supply chain in any way, inflation might skyrocket past the already “extremely high levels.”

Economists keep a careful eye on inflation expectations because if firms and consumers believe prices will continue to rise, their behavior will alter, creating a self-fulfilling prophesy.

(Behavior: Essentially they’re speaking of the idea that “the consumer” might sober up and quit spending money like a drunken sailor on shore leave.. And if consumers stop spending, well, the economy shuts down. Party’s over, amigo.)

Simultaneously, the job market is rising, with Goldman Sachs reporting the largest difference between available positions and employees in postwar US history.

High inflation expectations combined with a robust labor market “threaten to spark a mild wage-price spiral.”

This is in stark contrast to what they said not too long ago: that a wage-price spiral was unlikely to happen.

Given the updated inflationary environment, Goldman Sachs believes that the Fed will be easily able to justify rate hikes at each of the remaining 7 meetings they have this year.

Goldman Sachs also feels that there will be an additional rate hike to start the new year in 2023.

[sarcasm] Well that’s something to look forward to, isn’t it? [/sarcasm]

 

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Goldman Sachs Inflations Gonna Be Worse Than You Think