Thursday 14/10/21

  1. In MACRO, COMMODITIES & CRYPTO NEWS, US inflation rises, the UK economy picks up (but MPC members are banned from talking), Vietnam’s recovery sputters, coal stages a comeback while aluminium and zinc prices hit new highs. US>China on crypto mining…
  2. In SUPPLY CHAIN NEWS, the US changes the rules but the port snarl-up is set to continue
  3. In UK CONSUMER NEWS, house prices pick up again, food costs are set to rise and more energy providers go bust
  4. AND FINALLY, I bring you a superb prank…

1

MACRO, COMMODITIES & CRYPTO NEWS

So US inflation rises, the UK economy picks up, Vietnam’s recovery falters, commodity prices keep rising and the US overtakes China on crypto mining…

📢 It’s Thursday – so it’s time the one hour weekly ZOOM call for SILVER and GOLD subscribers where I will do a detailed review of the week as well as chance for Q&A and discussion 👍 The ZOOM call will start at 5.30pm and run until 6.30pm. See you there! I will also be doing another call straight afterwards aimed at university societies. If you want details for that, please ask your presidents to get in contact with me!

Food prices drive up inflation in US (The Times, Callum Jones) cites the latest headline US inflation figure, which has come in at a level that was higher than expected. Inflation has now returned to levels last seen in the summer, which were the highest seen in over a decade! Grocery prices were a major factor and there’s no sign of a let-up any time soon. * SO WHAT? * This is just going to put even more pressure on the Fed to increase interest rates in order to calm further inflation…

Back home, Domestic holiday boom helped UK economy bounce back in August (The Guardian, Richard Partington) cites figures from the ONS which show that GDP in August was boosted by 0.4% in August versus the previous month as Covid restrictions eased. However, it got more cautious on the impact of global supply chain problems and semiconductor shortages. Things are getting quite twitchy in terms of inflation and the increasing pressure to calm it down by increasing interest rates, so BoE bans MPC members from having private meetings with bankers (Financial Times, Chris Giles) as quite interesting because MPC members have now been gagged following rumours that deputy governor for monetary policy Ben Broadbent let slip in a meeting with an unnamed investment bank that the Bank of England was not minded to increase interest rates at the November MPC meeting. * SO WHAT? * My take on this is that the man is an arrogant idiot of epic proportions (possible), that this is part of some kind of cunning masterplan by the Bank of England to calm markets (sounds risky to me) or that the bank in question was putting two-and-two together and making five (also highly plausible – but banks ALWAYS try to read meaning into things, something Broadbent will be fully aware of). If he really DID do this the man deserves to be sacked IMO because letting something like this out of the bag is HUGELY market-sensitive. I would also hope that the bank in question will have its trades looked at to see whether it made any money from this (alleged) blabbermouth. At the moment, it seems that the MPC wants to see more labour data before it takes any action and that they are more likely to raise the interest rate in December.

Elsewhere, Vietnam’s business recovery sputters after worker exodus (Financial Times, John Reed) shows that the Asian manufacturing hub’s efforts to get back to business have faltered because of a shortage of labour. Ho Chi Minh City had a severe lockdown and as soon as migrant workers were allowed home, they left. * SO WHAT? * The problem now is that many of these low-paid migrants don’t have the money, transport or Covid vaccination papers to return, which is leaving Vietnamese manufacturers in the lurch just as global demand for their products is on the rise. Just to give you an idea of scale, before the pandemic there were over 2m migrant workers in a city of about 10m. If the government doesn’t fix this situation pronto then the global manufacturers that they’ve attracted (e.g. Ikea, Walmart, Nike, Adidas etc.) will be looking elsewhere in future to set up business.

Meanwhile, Coal makes a comeback as green energy fails to meet post-pandemic demand (Daily Telegraph, Rachel Millard) cites a report by the International Energy Agency which shows that CO2 emissions are on track to hit their second highest annual increase in history. This is because countries are relying increasingly on coal-fired power to meet the sudden rise in energy usage that renewables haven’t been able to cope with. China coal and natural gas imports surge as energy crisis bites (Financial Times, Primrose Riordan and William Langley) reiterates the point as China has been ramping up imports of coal and natural gas against a backdrop of the rationing of power usage and outages. * SO WHAT? * Most of China’s energy consumption depends on coal but government-imposed limits on how much producers can charge made it commercially unviable for electricity companies that use coal-fired power plants. The shortage of coal and gas has also been made more difficult because of import disruption in Indonesia and Mongolia as well as the government placing an informal ban on Australian coal in retaliation for the Aussies, who pushed for investigation into where the coronavirus originated. Increased China demand means it’ll be more expensive for everyone else!

Other commodities are also seeing sharp price rises as per Car prices to rise as aluminium cost surges to 13-year high (Daily Telegraph, Matt Oliver and Hannah Boland), which is unsurprising given that the manufacture of aluminium is very energy-intensive and Production warning turns up the hear on price of zinc (The Times, Hamzah Khalique-Loonat) which shows that Nyrstar, one of the world’s biggest smelters of zinc, plans to cut 50% of its output in Europe due to energy prices rising out of control. Surely governments are going to have to step in here…

Then in the wonderful world of cryptocurrency, US overtakes China as biggest bitcoin mining hub after Beijing ban (Financial Times, Eleanor Olcott) shows what happens when you ban bitcoin mining – it just packs its bags and sets up shop elsewhere! Figures published yesterday by the Cambridge Center for Alternative Finance show that China’s global hashrate (the computational power to mine bitcoin) dropped from 44% to zero between May and July (China’s state council banned bitcoin mining and trading in May) while the US went from 17% in April to 35% in August. Kazakhstan went from 8% to 18% over the same time period. * SO WHAT? * Given how energy-intensive bitcoin mining is, you would have thought that governments would be pretty eager to limit miners’ activities because their demands on the grid are just adding to the pain!

Meanwhile, Digital currencies could spark financial meltdown, says Bank boss (The Times, Simon Duke) shows that a deputy governor of the Bank of England, Sir Jon Cunliffe, warned that cryptocurrencies needed to be regulated as soon as possible to safeguard against a cryto-prompted market meltdown at a speech at an industry conference yesterday. * SO WHAT? * Isn’t it amusing how every time Bitcoin seems to be putting a very strong performance that some old geezer from a random central bank somewhere gets wheeled out saying that cryptocurrency = end of the world, and then do precisely NOTHING about it!!! It is, in of itself, pretty useless but then I guess it adds fuel to the fire and is maybe designed to soften the ground for potential regulation. That way the Bank can say “I told you so” to the crypto fanboys/girls when regulation decimates the value of their holdings. As I keep saying, I think that the biggest danger to crypto is regulation. Once those regulations come in, central banks can then slip in their own Central Bank Digital Coins (CBDCs), which will mean even more competition for current cryptocurrencies.

2

SUPPLY CHAIN NEWS

The US changes the rules but supply chain problems continue…

LA port to operate around the clock to ease cargo logjams (Wall Street Journal, Alex Leary and Paul Berger) highlights an important development for one of America’s busiest ports, the Port of Los Angeles, as it will now operate 24/7. This will pretty much double the hours that cargo can move and is a result of negotiations with the International Longshore and Warehouse Union. * SO WHAT? * This won’t improve things overnight, but at least it is a step in the right direction. Having said that, it’s about time! Ports in Asia and Europe have operated 24 hours a day for years! I guess this means that it will take a while for everyone in the chain to adapt their operations to take this into account.

Meanwhile, The picture that shows why Brexit is not to blame for Britain’s shortages (Daily Telegraph, Louis Ashworth, David Millward, Alan Tovey and Tim Wallace) highlights the observation that the snarl-ups in Felixstowe are not just due to Brexit and all the foreign lorry drivers leaving – there is a global problem with logistics and a global shortage of lorry drivers! The article has a photo which shows all the ships queuing off the Port of LA and Port of Long Beach. Unfortunately, No end in sight for shipping crisis, says Southampton and London ports boss (Daily Telegraph) shows that we are still having problems

in the UK. * SO WHAT? * I think I’ve said this in a recent podcast, but it’s interesting to see how a lot of comment on social media tends to blame the current shortage of lorry drivers solely on Brexit. Clearly this is A factor, but I would argue that without Brexit a lot of the foreign drivers would have gone home during the pandemic anyway to be with their loved ones. Given the shortage of lorry drivers everywhere, I would have thought that many would have been inclined to stay home and not return to the UK anyway because they could find work where they were. This may have given the government a get-out (because lorry drivers DID leave because of Brexit initially) but we are now in a difficult situation. I also think that the current port problems are more of a land-based logistic thing. If we can take cargo away from the ports as soon as it gets there, supply chains normalise and demand can be met more easily, increasing confidence, which will again breed more consumer spending. I really believe that if we can sort out the land side of things, the sea will soon follow. I would not be surprised to see a MASSIVE campaign to get people to train as lorry drivers potentially reminiscent of calling people up to go to war. If this DID happen, though, I wonder what would happen to the fate of the driverless trucks that everyone is going on about – because if you persuade people to do this job and then proceed to take their jobs away again in a few years, it isn’t going to be a good look, is it!

3

UK CONSUMER NEWS

House prices are on the rise again, food is likely to cost more and another load of energy providers go bust…

The UK consumer continues to face headwinds in the form of Homes shortage is forcing buyers into bidding war (The Times, Tom Howard) as the latest survey of estate agents from the Royal Institution of Chartered Surveyors (RICS), shows that a shortage of houses going on the market is driving the prices up of the houses that are on the market. Although there was a slight drop in housing market activity towards the end of the summer thanks to the end of the stamp duty holiday, it seems that the heat has returned as demand continues to outstrip supply. Rising prices will mean more expensive houses and more expensive mortgages, putting more pressure on household finances.

Then Food costs will soar 10pc in ‘great reset’, warns Britain’s biggest chicken firm (Daily Telegraph, Matt Oliver) shows that the chief of Britain’s biggest chicken producer, 2 Sisters Food Group, reckons that prices are going to go up substantially because food manufacturers are having to contend with a lot of expensive problems (higher CO2 prices, higher energy bills, higher feed bills, higher wage

bills etc.). I think that Ranjit Boparan gave us food for thought when he said “How can it be right that a whole chicken costs less than a pint of beer?”.

Meanwhile, Two more UK energy suppliers go under due to record wholesale gas prices (Financial Times, Nathalie Thomas) says that Pure Planet (which is backed by BP!) and Colorado Energy have joined the utilities-gone-bust group of shame and Four more energy companies at imminent risk of collapse (Daily Telegraph, Rachel Millard) shows that the failures are not likely to stop. It’s the same old problem – rising gas prices and the inability to pass the costs on to customers – and it’s going to continue. * SO WHAT? * All of these things are going to continue to squeeze household budgets a great deal while the Bank of England just faffs around saying that it wants to see unemployment figures before it puts the interest rate up. I don’t see prices calming any time soon and we keep seeing rising levels of employment from all sorts of data sources, so although there may well be a drop-off in the economic frenzy next year as we see the impact of furlough and consumers potentially rein in spending, I think that the Bank of England needs to head off rampant inflation NOW because if it leaves things too long, it will get much more difficult to control.

4

...AND FINALLY...

…in other news…

I thought I’d leave you today with a very amusing prank in Dad left fuming as daughter tells him she spent £60 on new air for car tyres (The Mirror, Amy Donohoe and Luke Matthews). It sounds a bit scripted to me, but it’s still funny!

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Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)