14.01.2022 – There is no escape: After consumer prices, producer prices are also sending an acute warning signal to the stock market. Interest rate fear everywhere. And now, of all times, the biggest ports in China are facing new Corona problems – a new shock in the supply chain. The bears are celebrating.
Producer prices rise as last seen in 1983
Meanwhile, the view is solidifying on the trading floor that the Federal Reserve will raise interest rates not just three times this year, but four. With a first rate hike in March. And some stockbrokers believe the Fed is making a huge mistake by doing so and stalling the economy. Just as it had already classified inflation initially only as a transitional phenomenon.
There they are, the signals of what is likely to come: U.S. inflation is at 7 percent. The Producer Price Index moved up 9.7 percent year-over-year in December. The PPI thus reached a 39-year high. It’s only a matter of time before consumers start feeling the pinch of higher producer prices in their household budgets.
Interest rate fears rage
A look at the details reveals the political and economic explosive nature of this statistic: The sub-index for producer prices for fuels and lubricants rose by a whopping 13 percent. Those who need their cars are impoverished. By contrast, the subindex for automobiles and spare parts fell by 2.7 percent – so people are saving and not buying a new vehicle. The increased saving will sooner or later lead to a recession in the industry.
The price increase is fodder for the Fed: After all, the U.S. Federal Reserve had already warned of an exit from quantitative easing and higher interest rates. Accordingly, prices on the Nasdaq and the S&P 500 in particular dipped. Unprofitable tech stocks in particular were thrown onto the market. We had already pointed out the dangers for these stocks: Those on credit have to fear higher interest rates. The SPX now hangs trembling in the 50-day line. And the inflation hedge Bitcoin is also far from the all-time high in the region of 43,000. Which is probably due to expectations for rising interest rates.
Interest rate turnaround behind the scenes
Another interesting interest rate turnaround factlet: 30-year mortgage rates in the U.S. are picking up. They have now reached 3.52 percent. In early December 2020, it had been 2.85 percent. What does that tell us? Mortgage lenders are now able to push through higher interest rates because home builders are assuming interest rates will rise and prefer to take out a loan now.
Supply shock in China
And now, of all times, a new bad news from China reaches the brokers: In the Middle Kingdom, the crisis in the supply chains is coming to a head because of the Omikron variant. According to Bloomberg, the important Chinese cargo port Ningbo south of Shanghai – the third largest container port in the world – is cancelled. Freight forwarders are stopping work because of Corona. Shipping companies are diverting their ocean liners to Shanghai and Xianmen – but these ports are already overloaded. This is likely to further fuel prices.
The question in this mixed bag is whether we will see a countermovement after the recent small sell-off. Or whether investors prefer to get out before the weekend. Bernstein Bank wishes you good luck with your trades and investments!
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