Stocks bulls backpedaled late last week as a strong May jobs report stoked the flames about a more aggressive Federal Reserve monetary policy. The payroll report released on Friday showed the U.S. added +390,000 jobs while the unemployment rate held steady at 3.6%. With inflation already at elevated levels, a strong job market runs the risk of keeping the economy “overheated,” which would translate to even more tightening by the Fed.
Bottom line, it could take some time to see “wage inflation” start to really ease. The big question is if “wage growth” can slow more aggressively on its own and reverse inflation, or will it take a Fed induced recession to slow the higher prices.
Data in May did indicate some areas of easing price pressures but continued strength in oil and fuel markets have likely offset any real progress. How long energy prices stay elevated and how high they ultimately reach is going to play a big roll in the inflation trend.
China’s reopening is one of the complicating factors as far as oil demand goes, as the country’s energy demands are expected to increase as manufacturing activity ramps back up. It’s still uncertain how big a share of global non-Russian oil supplies they are going to account for or how fast the country’s demand will increase. Most oil insiders believe the bump in oil production announced by OPEC+ last week will ultimately be insufficient to meet total global demand and are again warning the world could slip into a larger oil-deficit later this year and crude oil prices could push closer to $150 per barrel. Gas and diesel prices in the U.S. once again rose to new all-time highs over the weekend, which obviously is eating into consumers’ disposable income and ballooning transportation and other operating costs for businesses.
Many companies may need to pass those added costs on to consumers which will only add to inflation pressures. Climbing energy and fuel costs are bad news for margins too, so concerns about earnings potential in the upcoming quarters are making it tough for investors to justify driving stock prices higher right now. Insiders are also still talking about the possibility of fuel rationing on the East Coast this summer which could create a brand new nightmare for supply chains and again fan inflation flames higher. One positive sign is that diesel exports to the EU are starting to slow after running hot the past few weeks due to some lucrative arbitrage opportunities. Traders say that window has mostly closed and seem to think inventories will now be able to stabilize. Investors this week will also be monitoring the U.S. dollar after several big companies recently warned about the challenges the strengthening currency is causing for earnings. In the end, a strong greenback could help the Fed cool inflation as it does have the effect of lowering import costs. However, a strong dollar generally makes it more expensive for multinationals to operate overseas.
Data to watch
This week, the big report is the Consumer Price Index on Friday. Bulls are hoping the report further confirms that inflation has peaked. Unfortunately, bears expect it ticked higher thanks to the surge in energy prices last month. Regardless, many in the trade will want to talk about the “Core CPI”, which strips out fuel and food, as gains in this sector reflect more widespread and entrenched prices that economists worry will be difficult to bring down. For reference, Core CPI was up +6.2% year-over-year in April, versus the headline rate of 8.3%.
Today’s calendar has no economic data or earnings to speak of but Apple’s World Wide Developers Conference (WWDC) kicks off this afternoon and could generate some fodder for the tech sector. From what is being rumored, Apple is currently assembling the pieces for what it hopes will become its next “business-altering” device: a headset that blends the digital world with the real one The company has enlisted Hollywood directors such as Jon Favreau to develop video content for a headset that it is expected to ship next year. Mr. Favreau, an executive producer of “Prehistoric Planet” on Apple TV+, is working to bring that show’s dinosaurs to life on the headset, which looks like a pair of ski goggles and aims to offer virtual- and augmented-reality experiences.
Interesting… Putin’s Latest Comments: This was floating around this weekend inside the trade. Russian President Vladimir Putin recently named six ways of exporting the grains from Ukraine and shared his view of the reasons for the potential global food crisis. Speaking in an interview with Rossiya 24 TV channel, Putin called cries about Russia’s responsibility for the growing problems in the global food market “another attempt to pin the blame on someone else.”
“First, the situation with the global food market did not become worse yesterday or even with the launch of Russia’s special military operation in Donbas, in Ukraine. The situation took a downturn in February 2020 during the efforts to counter the coronavirus pandemic when the global economy was down and had to be revived,” he noted. Putin recalled that back then, the US financial and economic authorities printed large amounts of money to support the population and certain businesses and economic sectors; in less than two years, the money supply in America grew by 38,6% or $5.9 trillion, which led to the inflation and increase in food prices.
“Apparently, the US financial authorities proceeded from the fact that dollar is an international currency and as it was before it would spread throughout the world economy and in the US it (printing large additional amounts of money) won’t be noticeable,” the president said However, it happened to be a mistake, as the US secretary of the treasury recently admitted, he continued.
The second reason, according to Putin, is the short-sighted energy policy of the European authorities, who tried to force the transition to green energy without having a proper preparation ground for that.
“Banks, being pressured, stopped giving credits (for development of traditional energy sectors). Insurance companies stopped insuring the relevant contracts. The local authorities stopped providing plots for the development of the (energy) industry and reduced the production of specialized transport.
All this led to underinvestment in the global energy sector, and as a result – an increase in prices,” Putin noted.
The refusal of the European authorities from long-term contracts on gas deliveries caused the rise in prices as well, and not only on the hydrocarbons but also for fertilizers, because part of them is produced using gas, and further — to the increase in the food prices.
Finally, the US and EU imposed sanctions on the export of the Russian and Belarusian fertilizers, the US then lifted them, but the EU did not, Putin said.
Taking into account that Russia and Belarus have about 45% share of the global market of fertilizers, the news about their ban induced the spike in prices for the rest of the dressing and consequently in prices of food.
“One thing clings to another, and Russia has absolutely nothing to do with it. Our partners have made a lot of mistakes themselves, and now they are looking for someone to blame, and, of course, in this sense, Russia is the most convenient candidate for this,” he said.
Six ways of grain exports from Ukraine Putin called “a bluff” Ukraine’s capabilities to provide to the global market enough grain to prevent the food crisis. He cited the UN data, according to which approximately 800 million tons of grain and wheat are produced annually in the world.
Ukraine’s export potential mounts to 20 million tons or 2,5% of that volume, but as of today, the country is only capable of exporting some five-six million tons, which is a very small amount. Besides, Russia does not prevent export, and there are several ways to export grains, the Russian president noted.
“The first. Please, it is possible to export through ports that are under the control of Ukraine, primarily in the Black Sea basin — Odesa and nearby ports. We didn’t mine the approaches to the port – Ukraine mined it.
“The second. There is another possibility, the ports of the Sea of Azov — Berdyansk, Mariupol. They are under our control, but we are ready to ensure trouble-free export, including the Ukrainian grain, through these ports.
“The third. It is possible to export grain from Ukraine through the Danube and through Romania.
“The fourth. It is possible through Hungary.
“The fifth. It is possible through Poland. Yes, there are certain technical problems there, because the railway is different, it is necessary to change the carts. But it’s just a matter of a few hours, and that’s it.
“And, finally, the simplest thing is the export through the territory of Belarus. The easiest and cheapest, because from there directly to the ports of the Baltic states, to the Baltic Sea and further — to anywhere in the world. “So there is no problem with the export of grain from Ukraine,” he said.
46,000 People Lost $1 Billion to Crypto Cons in 15 Months:
The euphoria around cryptocurrencies in 2021 has not only made millionaires and billionaires. It was also a ruin for thousands of retail investors. And things are not getting better since the beginning of 2022. Crypto scams, which multiplied last year, continue. Since the start of 2021, more than 46,000 people have reported losing over $1 billion in crypto to scams, according to a new report from the Federal Trade Commission (FTC). That’s about one out of every four dollars reported lost, more than any other payment method. The median individual reported loss is $2,600. The top cryptocurrencies people said they used to pay scammers were Bitcoin (70%), the king of crypto, stablecoin Tether (10%), and Ether (9%), the second-largest crypto by market value.
The report also singles out ads and social media as the perfect pair that makes life easier for scammers. Nearly half the people who reported losing crypto to a scam since 2021 said it started with an ad, post, or message on a social media platform. In order, the scammers were luckiest on Instagram (32%), followed by Facebook (26%), WhatsApp (9%), and Telegram (7%). The most common type of crypto fraud was investment scams, followed by romance — with $185 million in reported cryptocurrency losses since 2021, which is nearly one in every three dollars reported lost to a romance scam during this period scams — business imposters, and then government imposters. Source The Street
Is There Energy and Food Crisis?
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