Member Briefing July 14, 2022

July 14, 2022

Posted By: Harold King in Daily Briefing,

9.1% – Inflation Rose Even More Than Expected in June, as Consumer Pressures Intensify

The consumer price index, a broad measure of everyday goods and services related to the cost of living, soared 9.1% from a year ago, above the 8.8% Dow Jones estimate. That marked the fastest pace for inflation going back to November 1981. Excluding volatile food and energy prices, so-called core CPI increased 5.9%, compared with the 5.7% estimate. Core inflation peaked at 6.5% in March and has been nudging down since.

On a monthly basis, headline CPI rose 1.3% and core CPI was up 0.7%, compared to respective estimates of 1.1% and 0.5%.
Energy prices surged 7.5% on the month and were up 41.6% on a 12-month basis.
The food index increased 1%,
Shelter costs, which make up about one-third of the CPI rose 0.6% for the month and were up 5.6% annually.
Rental costs rose 0.8% in June, the largest monthly increase since April 1986, according to the BLS.

War in Ukraine Headlines

An Omicron Vaccine is Coming. Should You Wait for it—Or Get Your Next Booster Now Amid BA.5’s Surge?

With Omicron-specific vaccines perhaps only months away, Americans may be weighing whether to hold out for those doses or receive their first or second booster now. “It would depend on a person’s underlying health condition,” says Siddharth Sridhar, clinical assistant professor at the University of Hong Kong’s department of microbiology. “People with medical conditions that put them at risk of severe COVID should get the existing vaccine as a second booster.”

For months now, experts have advised vaccine recipients, especially those with underlying health conditions, to receive the doses they’re eligible for as soon as possible rather than consider other factors, like vaccine brand or current COVID case counts. Some experts argue that the calculus is different for younger and healthier people. In the U.S., Americans under 50 without compromised immune systems don’t yet qualify for a second booster. And this pool of people is already well protected from severe disease so long as they received their first booster.

Yield Curve Inversion Between 10-Year and 2-Year Rates Reaches Biggest Point Since 2000

The 2-year Treasury yield popped Wednesday while its 10-year counterpart fell, pushing the so-called inversion between the two to its biggest level since 2000. The 2-year, which is more sensitive to changes in monetary policy, traded 9 basis points higher at around 3.13%. The benchmark 10-year rate, meanwhile, slid nearly 5 basis points to 2.91%. Yields move inversely to prices, and a basis point is equal to 0.01%.

Yield-curve inversions are seen by many on Wall Street as signals that a recession lies on the horizon. Earlier on Wednesday, Bank of America economists said in a note that they expect the U.S. to enter a “mild recession” this year. They noted that incoming data points to slowing momentum for the economy and that inflation seems to be hindering consumer spending.

U.S. COVID – Hopes of Covid-19 Reprieve Fade as BA.5 Subvariant Takes Over

Covid-19 is circulating widely as the BA.5 Omicron subvariant elevates the risk of reinfections and rising case counts, spoiling chances for a summer reprieve from the pandemic across much of the U.S.

Covid-19 levels are high in a fifth of U.S. counties, according to the Centers for Disease Control and Prevention’s metric based on case and hospital data, a share that has been mostly rising since mid-April. BA.5 is estimated to represent nearly two in three recent U.S. cases that are averaging just more than 100,000 a day, CDC data show. The true number of infections may be roughly six times as high, some virus experts said, in part because so many people are using at-home tests that state health departments largely don’t track.

Citing Risk from Omicron Variant BA.5, White House Urges Americans to Get Covid-19 Boosters

The Biden administration urged the public to strengthen their protections against Covid-19, noting that the BA.5 subvariant of Omicron has become the dominant strain in the country. At a briefing Tuesday, health officials outlined their plan to combat the latest form of the coronavirus to pose a threat, emphasizing existing tools like vaccines and boosters, testing, and treatments. Health officials sought to convey they were on top of BA.5, while underscoring the risks it posed.

“BA.5 is something we’re closely monitoring, and most importantly, we know how to manage it,” said Ashish Jha, the White House’s Covid-19 response coordinator. The latest estimates indicate BA.5 is now responsible for about 65% of U.S. Covid-19 cases, while its closely related cousin, BA.4, is accounting for about 16% of infections, said Rochelle Walensky, the director of the Centers for Disease Control and Prevention.

Freight Rates Trending Down

High-price freight contracts that were written when carrier capacity was tight and a rush to restock inventories was in full force are losing their shine as slowing demand and a wavering U.S. economy send shipping rates sliding. Some companies now are renegotiating shipping agreements they struck at the height of the pandemic-driven surge in freight demand or are dipping into the spot market to take advantage of lower rates.

The reduction in transportation costs is good news for manufacturers and retailers after two years of rapidly rising expenses. It also suggests the contribution of the freight sector to inflation is at least leveling off. But shippers note they are still paying several times more than they did before the Covid-19 pandemic snarled supply chains world-wide.

Biden Closes in on China Tariffs Decision

President Biden is contending with competing political and policy pressures as he closes in on a decision on whether to lift Trump-era tariffs on Chinese imports. On one hand, it’s one of the only options at Biden’s disposal to try to lower the price of everyday goods that are subject to tariffs of up to 25 percent. But axing tariffs would have a minimal impact on inflation, experts say.

The U.S. is conducting its four-year review of the Section 301 tariffs placed on furniture, footwear, sunscreen, appliances, bicycles and other consumer goods, and officials have indicated the White House will announce its decision soon. Experts expect Biden to lift or reduce tariffs on a relatively tiny fraction of imports: as little as $10 billion worth of Chinese products out of the roughly $350 billion in goods slapped with tariffs by former President Trump.

The 20 Counties That Will Decide the Midterms – One is in the Hudson Valley

The U.S. has more than 3,000 counties, but with its population increasingly sorting into solidly blue or comfortably red territory, the number of truly contested regions is just a tiny fraction of that total. These are 20 of the most important counties – including Dutchess County – that will determine whether Republicans or Democrats rule the House and Senate in 2023.

Biden Heads to the Middle East – 5 Things to Watch

For decades American presidents have arrived in the Holy Land like earnest pilgrims searching for the holy grail of a two-state solution. George Bush hoped to find it in 2003 with his “road map for peace”. Barack Obama came in 2013, Donald Trump promised to “give it an absolute go”. Joe Biden has lost the faith. His nearly 48-hour visit to Israel and Palestine, which begins on July 13th, will be an exercise in banality: shake a few hands, see a few sights, head back to the airport.

The focus of Mr Biden’s trip begins on July 15th, when he lands in Jeddah, the first American president to fly to Saudi Arabia from Israel. Even Israelis acknowledge that they are a warm-up act. The trip’s most fraught moment may be an expected encounter with Muhammad bin Salman, the Saudi crown prince, a bête noire for many Democrats because of his dismal human-rights record. Mr Biden has refused to talk to him since he took office. But now….

Oil Prices Could Spike ‘Well Over $150’ a Barrel: Energy Analyst Says

The national average for a gallon of gas fell to $4.66 on Tuesday, dropping thirty-four cents since May 2022. However, some analysts believe that the recent relief in oil prices is only temporary. “I think a lot of this, especially for oil, is going to go back to Russia. And I think you are going to see supply upended, if not at the end of the year, if not before. I think that has the potential to cause oil prices to even spike higher than what we just saw a couple months ago,” Neal Dingmann, Truist’s managing director of energy research, told Yahoo.

Dingmann predicted gas prices could rise “potentially 50%” if the U.S. doesn’t have an alternate source for Russian oil. In 2021, Russia and Saudi Arabia were the top petroleum importers for the U.S. The nations supplied 8% and 5% of the total market’s natural gas across the 50 states.

Happy Bastille Day – Microchip Shortages Hit Renault Sales

French carmaker Renault said Tuesday that sales of its conventional and electrical vehicles fell in the first half of this year, impacted by the worldwide shortage of semiconductors. It said it sold 1,000,199 units in the first half of 2022, down 12% compared to the same period last year. The data for both years did not include sales in Russia.

Renault said the dip in sales comes “in a context disrupted by the semiconductor crisis and marked by the shutdown of the group’s activities in Russia”. The global shortage of such parts has forced carmakers around the world to throttle and even halt production temporarily.

After a Turbocharged Boom, are Chipmakers in for a Supersized Bust?

Last year the chip industry’s revenues grew by a quarter to $580bn, according to idc, a research firm. Chipmakers’ market values soared. With demand expected to grow ever more insatiable, the time-honoured semiconductor cycle—the consequence of the lag between demand and new supply, which takes a year or two to build up—appeared to be a thing of the past, prompting chip firms to spend like there was no tomorrow. TSMC and its two main rivals, America’s Intel and Samsung of South Korea, invested $92bn between them last year, a rise of 73% relative to 2019—and pledged a further $210bn or so all told over the next two years.

Now it seems that far from being banished, the chip cycle may instead have sped up. Chips of all sorts are looking wobbly. This month Samsung said that operating profit would stall this quarter, following three quarters of record-breaking sales figures. It is reportedly considering dropping prices for memory chips in the second half of 2022. TrendForce, a research firm, expects memory prices to fall by a tenth in the next three months. By one estimate, prices of graphics chips have dropped by half since January, as the cryptosphere implodes and gamers spend more time in non-virtual reality.

Global Oil-Supply Crisis Shows Signs of Easing, IEA Says

The worst oil-supply crisis in decades is showing tentative signs of easing as flagging economic growth weighs on demand for crude while sanctions on Russia are having less impact on oil production than expected, the International Energy Agency said Wednesday. The Paris-based agency cut its forecasts for oil demand for this year and next.

Meanwhile, U.S. and Canadian producers were leading an increase in global output, while sanctions on Russia’s oil industry were having less of an effect on its production levels than initially expected.