Aurelia Butler

The dollar touched its strongest point against the euro in 16-months on Thursday, after a surge in US consumer price inflation to a three-decade high revived market bets on the Federal Reserve tightening monetary policy. After a steep fall overnight, the eurozone currency dropped a further 0.1 per cent to $1.15, its weakest since July 2020. Sterling also touched its lowest point against the dollar since December 2020, despite official data showing the UK economy grew by a better than expected 0.6 per cent in September from the previous month.US consumer prices rose at 6.2 per cent in the 12 months to October, figures showed on Wednesday, exceeding economists’ expectations and sparking the biggest sell-off in short-term US government debt since the global market turbulence of March 2020. The Treasury market was closed on Thursday for a national holiday.“Markets responded by bringing forward their pricing of the first rate hike to the [Fed’s] July 2022 meeting,” Deutsche Bank strategist Jim Reid said. Federal Reserve chair Jay Powell pledged “patience” towards raising interest rates at the conclusion of the US central bank’s monetary policy meeting last week. The Fed also maintained its long-held view that consistently high levels of inflation were “transitory”, and driven by supply and demand imbalances and the reopening of the economy from 2020’s shutdowns. “Investors have to decide whether the Fed and other central banks’ dovish forecasts and policy stances will be robust in the face of a few more months of difficult inflation releases,” Standard Chartered strategist Steve Englander said. The CPI data was “as bad as it looks”, Englander said in a note to clients. Standard Chartered’s own measure of “core” US inflation, which excludes food and energy as well as price moves in pandemic-sensitive items such as used cars, hotels and airfares, rose by 0.45 per cent from September to October.Meanwhile, European Central Bank president Christine Lagarde said late last month that currently high rates of eurozone inflation would fall below its 2 per cent target by 2023. “The ECB is generally seen as staying dovish for longer,” said Tatjana Greil Castro, head of public markets at credit investor Muzinich & Co. ECB board member Isabel Schnabel also signalled in a speech earlier this week that the eurozone central bank may keep its main deposit rate below zero until after it ends its crisis-fighting bond-buying programme. European equities drifted close to record highs, having rallied in recent weeks as strong corporate earnings suggested companies had managed to pass higher costs on to consumers. The regional Stoxx Europe 600 share index rose 0.1 per cent, while Germany’s Xetra Dax fell 0.1 per cent. London’s FTSE 100 gained 0.4 per cent as exporters were boosted by the weak pound. Futures contracts tracking the US S&P 500 share index gained 0.3 per cent as investors judged stocks to be less affected by inflationary concerns than fixed income-paying government debt securities. According to research house DataTrek, during the high inflation period of 1972 to 1980, S&P companies’ profits grew 120 per cent, slightly outpacing an aggregate 110 per cent rise in consumer prices over the same period. In Asia, Hong Kong’s Hang Seng index closed up 1 per cent and mainland China’s CSI 300 rose 1.6 per cent, boosted by media reports suggesting the Beijing government was preparing support for the nation’s ailing real estate sector. More

Investing.com — The dollar surged to a 16-month high as the highest inflation in 30 years in the U.S. prompted bets on higher interest rates. The same move also took the edge off the oil market, which awaits OPEC’s monthly report. Elon Musk appears to be done selling Tesla (NASDAQ:TSLA) shares for the present, and AMC Entertainment’s (NYSE:AMC) Adam Aron also cashed out big time at the start of the week. Stocks are set to recover from Wednesday’s losses though – despite a disappointing update from Disney late on Wednesday. And the first lockdown of the winter in western Europe may be announced this week. Here’s what you need to know in financial markets on Thursday, 11th November.1. Dollar surges on rate hike bets after inflation dataInflation fears returned to haunt global markets after data showing the U.S. consumer price index rising at its fastest level in three decades.The 10-year benchmark Treasury yield rose 10 basis points on Wednesday in response to the numbers, which showed a broad-based and faster-than-expected rise in prices and undermined a subsequent auction of 30-year debt.The dollar index, meanwhile, rose to its highest since June 2020, as markets anticipated a first rise in U.S. interest rates well ahead of the Federal Reserve’s current guidance.The bond market is closed Thursday for the Veterans Day holiday, but there will be central bank action elsewhere, with Mexico and Peru both tipped to raise interest rates.2. Musk, Aron cash out Elon Musk has completed around one-third of the stake sale he indicated was likely on Sunday, according to SEC filings.The filings show that Musk sold around 4.5 million shares over the course of three days, somewhat more than the shares he acquired through exercising options previously awarded as compensation.Musk had set up the plan for exercising his options and disposing of his shares on Sept. 14, before his attention-grabbing Twitter poll at the weekend.Musk wasn’t the only CEO cashing out on Wednesday: AMC Entertainment’s (NYSE:AMC) Adam Aron also filed to some $53 million of stock, days after the movie theater chain reported disappointing revenue and earnings for the third quarter. Around half of that has been executed already.Tesla stock was up 2.5% in premarket, as the market digested the short-term supply shock.3. Stocks set to open with a bounce; Disney struggles with streaming saturationU.S. stocks are set to open higher later, bouncing back from their inflation-driven losses on Wednesday.By 6:20 AM ET (1120 GMT), Dow Jones futures were up 47 points, or 0.1%, while S&P 500 futures rose 0..4% and Nasdaq 100 futures rose 0.6%.Stocks likely to be in focus later will include Rivian (NASDAQ:RIVN), which surged by nearly 30% on its market debut to finish the day with a market value of $85.9 billion.Also in focus will be Disney, which slumped in premarket after reporting a sharp slowdown in subscriber growth at its Disney+ service, overshadowing improved performances from its movie and theme park divisions.4. Lockdowns return to EuropeEurope is starting to tighten its public health measures again as the seasonal increase in Covid-19 cases and hospital admissions worsens.The Dutch government is set to take a decision on Friday on a raft of measures recommended by its scientific advisory board, including the cancellation of events, closing theaters and cinemas, and curfews for cafes and restaurants. Schools, however, would remain open.The Netherlands’ 7-day infection rate is back at the record high of last winter, while in neighboring Germany, new infections topped 50,000 for the first time ever on Wednesday and deaths rose to their highest since April.  The recent decline in new infections in Britain also reversed sharply on Wednesday.5. Dollar strength hits oil prices; OPEC monthly report dueCrude oil prices weakened overnight as the rise in the dollar hit various commodities whose prices are generally quoted in dollars.By 6:30 AM ET, U.S. crude futures were down 0.7% at $80.78 a barrel, while Brent futures were down 0.5% at $82.25 a barrel.The move was also influenced at the margins by an unwinding of tension in European natural gas markets, as Russia started to ship extra volumes to western and central Europe through its land-based pipelines. That relief might not last long, however: Belarusian President Alexander Lukashenko threatened to stop gas flows through the Yamal-Europe pipeline if the EU proceeds with sanctions against his regime, which has allowed thousands of migrants to seek illegal entry to the EU via its border with Poland and Lithuania.The Organization of Petroleum Exporting Countries will update its forecasts for global supply and demand in its monthly report later. More

Hello from Brussels. As you receive this, the Trade Secrets (virtual) summit for 2021 is under way, with a day of discussion and debate on the global trading system, supply chains, the climate change angle and more. If you haven’t yet, you can register here and catch up with anything you’ve missed on video. With supply-chain problems and the horrendous congestion at ports in general and west coast US ports in particular occupying everyone’s minds, the extended main piece in today’s newsletter is a what-can-we-learn-from-history thing. To be more precise, it asks whether the 1960s experience of inefficient ports being disrupted by new methods and new technology can repeat itself. Coulda been a contender but for the container(It’s from a film.) The inspiration for today’s main piece came from rereading The Box, by the economist and historian Marc Levinson, a magisterial history of the technology, economics and politics of — stay with us — the shipping container. Trust us here: whether you’re already a trade nerd or not, you’ll want to read it. One of the juiciest bits comes in the 1960s and 1970s, when containerisation broke open the horribly inefficient port arrangements in New York. The longstanding “break-bulk” system where cargo was laboriously unloaded, rearranged and loaded under antiquated working practices created lots of jobs for organised-crime-ridden labour unions in Manhattan and Brooklyn at great expense to the cost of shipping. The movie quoted above, On the Waterfront, set in New Jersey, is fiction, but the phenomenon of ports blighted by Mob influence and corruption was all too real. (Still is, some might say.)Enter the standardised container, which massively improved efficiency after overcoming fierce opposition from the longshoremen (dockers) unions. Rather than continue to use the small crowded piers in New York City, the industry simply nipped over the Hudson to New Jersey and built a 1,500-foot container wharf there. Is this analogous to the inefficient west coast ports such as Los Angeles and Long Beach today, with their limited operating hours, restrictive labour practices (admittedly with rather less sinister unions) and lack of automation? Will something come along to disrupt them? The answers are respectively “yes, somewhat” and “not clear”. Both the need and the potential for radical change are less obvious now than then.Certainly, the container terminals at the likes of Long Beach are less technologically sophisticated than counterparts such as Rotterdam in the Netherlands. Ryan Petersen, the chief executive of the San Francisco-based freight forwarder Flexport, whom we spoke to recently, says: “Rotterdam has had a pretty much fully automated port complex for 20 plus years. In the United States we have Long Beach container terminal, but you still have drivers and crane operators in there.” He attributes this partly to the relative strength of the US labour unions, which have resisted automation, and partly the lack of government investment.A long-term failure to build state-of-the-art systems means problems are not amenable to quick fixes. Get rid of one chokepoint and others become apparent. For example, there has been a lot of focus on operating hours, with President Joe Biden calling on the longshoremen and the big logistics companies such as UPS to work through the night. But it seems that’s not the main constraint. Full warehouses and a shortage of trucks and chassis to carry the containers make it hard to shift cargo even when the terminals are open.MSC, the world’s second-largest container shipping line, runs a container terminal in Long Beach through its terminals business. But it says that when it opened through the night in September, it only got five trucks during the 3am to 8am shift. (You can hear MSC’s chief executive Soren Toft discuss ports, supply chains and trade at, guess where, today’s Trade Secrets summit.)At this point Trade Secrets went to the mountaintop and asked Marc Levinson himself about the potential for disruption and improvement in America’s ports because of the supply-chain crunch. What he said was very interesting and somewhat against the conventional wisdom.Sure, he said, labour unions and a lack of government backing — through legal authority as well as cash — had helped keep US ports relatively small and inefficient. The Dutch and Belgian governments can manage the ports of Rotterdam and Antwerp as one big operation, for example mandating that cargo be moved to and from container terminals by rail instead of road. The US state and federal governments don’t have the powers to regulate port practices the same way. The US Supreme Court in 2013 threw out a relatively modest “clean trucking” law by the Port of Los Angeles which would have regulated environmental and driving practices for trucks in the port.But an overlooked issue, Levinson reckons, is the increasing concentration in the global shipping industry. A limited number of companies control a large share of the traffic and also run container terminals, and lack of competition might be a problem. “One question which doesn’t get asked too often is if there is in fact, a lack of investment in the terminals, why don’t the ship lines that control some terminals make those investments?” he says.And with regard to the current situation, it’s uncertain whether any big investment will be justified in the long run. “The very rapid growth in demand for container shipping we’ve had over the past year and a half is not likely to continue,” Levinson says. “Before the pandemic, the maritime industry was suffering from excess capacity.”Demand is the huge factor. The west coast ports are particularly hard-pressed because they handle much of the trade in consumer goods from Asia, boosted by Biden’s massive fiscal stimulus. Across the US, the port of Baltimore is priding itself on having avoided logjams by investing. But then Baltimore hasn’t seen the surge in traffic the west coast ports have, not least because (ironically) the global semiconductor shortage in supply chains has suppressed trade in cars.Expansion in goods trade relative to overall gross domestic product stalled and then fell after 2008. An ageing population buys more services and fewer consumer durables; electric vehicle manufacture generates much less trade in auto parts than making conventional engines. “If you own a terminal, do you want to invest on the assumption that this extremely rapid growth rate continues?” Levinson says. “I think that’s an optimistic assumption.”So, yes, you could almost certainly make US ports, especially on the west coast, more efficient. But would massive investment by the private or public sector have a good medium-term pay-off? Much less clear. The disruption of the New York City port from the 1960s and 1970s took place while world trade relative to GDP was on a decades-long secular upward trend, albeit with some big bumps on the way. Containerisation was a sure bet. Today’s situation looks more like an extraordinary one-off surge after the shock of the pandemic against a backdrop of secular sluggishness. The west coast might not get its radical transformation, but in the longer run it might not be worth it anyway.Trade linksGermany risks lagging behind its European peers, as supply chain snags weigh on industrial activity. France has persuaded the EU to postpone signing two new trade agreements, with New Zealand and Chile, until after its presidential elections in April. Cambodia faces a devastating loss of preferential trade status with a second key market as the US plans (Nikkei, $) a review of corruption, organised crime and human rights abuses in the country. Japan’s border reopening this week has unleashed (Nikkei, $) overseas recruiting plans by companies including e-marketplace Mercari. Alan Beattie and Francesca Regalado More

The writer is president of Queens’ College, Cambridge and an adviser to Allianz and GramercyOnce again, a widely watched inflation data release surprises on the upside. Once again, the underlying drivers of inflation continue to broaden. Once again, it is the most vulnerable segments of the population that are hit hardest. And once again, those who all year long have been characterising this inflation episode as “transitory” appear hesitant to revisit their convictions despite consistently contradictory data.At one level, this hesitancy should not come as a huge surprise given the usual behavioural traps: in this case, they include inappropriate framing, confirmation biases, narrative inertia, and resistance to a loss of face. Yet, its persistence in the face of repeatedly contradictory data seriously increases the risk of otherwise-avoidable economic, financial, institutional and social damage.According to the data released on Wednesday, US consumer prices rose 0.9 per cent in October alone, well above the median forecast of 0.6 per cent. This took the annual inflation rate to 6.2 per cent, again above the 5.9 per cent consensus expectation and the highest in 31 years.Such unusually high inflation is likely to continue in the months ahead given price increases already in the pipeline. This week alone, the indices of producer prices in China and the US registered rises of 13.5 per cent and 8.6 per cent respectively. Wage increases are also moving higher and, judging by the recent corporate earnings season, many companies are preparing for the underlying drivers — from supply chain disruptions, insufficient truck capacity and clogged ports to high freight rates and labour shortages — to last into next year.It is not surprising that the run of recent months of persistently high inflation has started to change behaviour. Wage demands are going up across more sectors, as is the threat of strikes. Companies are feeling more comfortable about lifting their prices given robust demand. There are even indications of consumers bringing forward purchases.Despite the trifecta of persistently higher-than-expected inflation, further price rises in the pipeline and changing behaviour, the inflation narrative is proving particularly slow to evolve at the US Federal Reserve. With that, monetary policy continues to fall behind realities on the ground.The lack of a credible central bank voice on inflation also leaves markets in somewhat of a muddled middle. Witness the high volatility in government bond markets that is managing to whipsaw even the most sophisticated and seasoned investors.Fed hesitancy is a material risk to economic and social wellbeing. I say this in the full knowledge that a lessening of the emergency-level monetary policy stimulus will not solve supply chain disruptions and labour shortages, the two major causes of accelerating cost-push inflation.Yet the continued sidelining of the inflation threat by the Fed risks making things worse by de-anchoring inflationary expectations due to the persistence of extremely loose monetary policy, record easy financial conditions (according to the weekly Goldman Sachs index of them), and the lack of adequate forward policy guidance.

It will also bolster the view that the Fed is captive to financial markets, especially given its relatively lax regulatory stance, and insensitive to the continuous worsening in inequality.There is a lot at stake here. The later the Fed is in easing its foot off the monetary stimulus accelerator, the greater the probability that it will have to hit the brakes more aggressively down the road. This would unnecessarily undermine an economic recovery that needs to be strong, inclusive and sustainable.By undermining macro-economic stability, this would also make green financing and other climate initiatives harder to follow up on, and place more obstacles in the path of the Biden administration’s ambitious economic agenda. Inflation will continue to hit low-income households particularly hard. Already, surging food and petrol prices are taking big chunks out from household budgets.The adverse risk scenario is also getting more worrisome. The more the Fed falls behind, the greater the threat of it being a driver of three of four simultaneous contractionary forces in the middle of next year if not earlier: higher interest rates, financial market instability, a reduction in the real value of household savings and the erosion of fiscal stimulus.Should these materialise together — and the possibility is rising — the US economy would end up in an otherwise-avoidable recession, also dragging down growth rates in the rest of the world. While this would bring down inflation, it would do so at a huge cost.This week’s inflation numbers amplify an alarm bell that has been ringing for a while. Let’s hope that, this time around, the alarm prompts the Fed into taking additional monetary measures, starting with an acceleration next month in the timetable for the tapering of large-scale asset purchases.The good news is that there is still a window for an effective monetary policy adjustment. The bad news is that the window has narrowed and is becoming uncomfortably small. Failure to act promptly would turn the Fed’s increasingly discredited “transitory” characterisation from one of the worst inflation calls in decades to also a big policy mistake with widespread and unnecessary damage, particularly for the most vulnerable segments of society.  More