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One of the most discussed topics last week was the rise of inflation in the US. In the context of growing gasoline and food, prices the CPI skyrocketed last month to 6.2%, levels not seen since the 1990s. In the wake of the inflation figure, US President Joe Biden said that lowering inflation is one of his “top priorities”. Despite the fact that it is not yet clear how he plans to solve the problem, one thing is for sure, if current trends continue, the US Federal Reserve might be forced to raise interest rates sooner than expected.
In the meantime, risk aversion gripped financial markets and the US dollar went up to almost 16-month highs against the euro and other currencies. Along with this, Treasury yields soared, reflecting growing concerns about further tightening of monetary policy in the United States. Given that the strengthening of the US currency is also undesirable for US multinationals, it cannot be ruled out that in individual cases fourth-quarter results will disappoint investors.
Additionally, we find it necessary to mention that the number of initial jobless claims in the US fell by 4,000 from the previous week’s revised figure to 267,000. The four-week average of claims fell by almost 7,300 to 278,000. In the week ending 30 October, 2.2 million Americans received traditional unemployment benefits. In a few words, the data suggest that the labor market continues to recover from the negative effects of the coronavirus. Does this mean that the Fed may accelerate tapering? Given the country’s higher inflation rate, we do not exclude this scenario. The only problem is that if the welfare bill is passed, all these efforts are likely to go to waste. Who would benefit? First and foremost, defensive assets, including Bitcoin.
Speaking of the energy crisis, gas prices in Europe have fallen below $1,000 per thousand cubic meters amid increased supplies from Russia. To be more precise, early last week, Gazprom announced that it had approved a plan and routes to feed five underground storage facilities in Europe. The volume of gas supplied has risen to the highest level in two weeks.
The problem is that Europe has entered an active season of withdrawing gas from its underground storage facilities, at multi-year lows in terms of fuel reserves. And if the coming winter turns out to be severe, there is a risk of a further spike in prices. In addition, Lukashenko has threatened to stop gas transit to the EU if the borders are closed. Approximately 20 percent of Russian gas supplied to the EU passes through Belarus.
In the case of black gold, meanwhile, commercial crude stocks in the US, the world’s largest oil consumer, increased due to a small opening of the strategic reserve. To be more precise, crude inventories rose by 1 million barrels in the week to 5 November, against analysts’ expectations of a 2.1 million barrel increase. The SPR release was 3.1 million barrels, the largest since July 2017. On top of that, the US is expected to be able to use between 45 million and 60 million barrels of oil from strategic reserves.
In conclusion, it looks like the party’s only sure to continue.
