“Aggravating factors”
This week’s title is apropos of both the world of crypto (where a “stablecoin” losing its peg has had a “cascading effect”) and the equity market (where declining stocks have sent CNN’s Fear & Greed Index to 52-week lows). However, unfortunately, the title also applies to global food and energy, which continue to run afoul.
On the food front, infant formula is making headlines as “a recall, inflation and supply chain problems” have left manufacturers unable to “keep up with demand”. But returning to earlier stages of the supply chain, problems continue to loom. The USDA’s latest grain report highlights that “consumption exceeds production, stocks tighten”, with global production of both corn and wheat expected to decline (the latest WASDE forecasts a drop of roughly 0.6% in world wheat production). On the positive side, global rice production is forecast to hit a record. However, this may be tempered by the demand to replenish global stocks, which are themselves “down to a three-year low as consumption grows faster than production and China continues to auction its large government stockpile”. On the fertilizer front, “supplies of key nitrogen fertilizer products are under pressure” with continuing or new restrictions from China and Russia threatening to derail the “expectation of increased availability of fertilizers” in the coming months.
Turning to energy, things continue to muddle along. Europe’s natural gas situation is once again taking hit after hit, with the closure of a transit hub in Ukraine leading to a 25% reduction in natural gas volumes shipped through the country to Europe. This was followed by Russia announcing sanctions that will affect a range of energy companies, “though the full implications on gas supplies weren’t yet clear”. Trying to gain some upper hand over energy prices, Italy’s Mario Draghi suggested that “oil consumers unite to form a cartel with the goal of capping oil prices”, and stateside, there’s a bill on the docket that would try to prevent oil companies from exploiting consumers and charging prices that are “unconscionably excessive”.
P.S. While policymakers and Central Banks try to keep things cordial, some goodwill toward the BoE is beginning to vanish. MPs have spoken out against the Bank “in a rare outbreak of political criticism”, noting that the BoE “got it completely wrong at every single moment of this crisis”.
P.P.S. After the yield curve briefly inverted a few weeks ago, mentioned here, the San Francisco Fed has a new article out on recession risk and the yield curve. Using both the 10y-3m and the 10y-2y spreads, the researchers have some good news, finding that “according to our preferred measure of the shape of the yield curve, recession risk [over the next year] is currently quite low”, and what’s more, “this outlook is unlikely to change in the near future”.
