CPI for all items rises 0.8% in February; gasoline, shelter, food indexes rise After rising 0.6 percent in January

(…) The index for all items less food and energy rose 0.5 percent in February following a 0.6-percent increase the prior month.

The all items index rose 7.9 percent for the 12 months ending February. The 12-month increase has been steadily rising and is now the largest since the period ending January 1982. The all items less food and energy index rose 6.4 percent, the largest 12-month change since the period ending August 1982. (…)

The shelter index increased 0.5 percent in February and accounted for over 40 percent of the monthly increase in the all items less food and energy index. The rent index increased 0.6 percent in February and the owners’ equivalent rent index rose 0.4 percent. The shelter index rose 4.7 percent over the last 12 months, its largest 12-month increase since May 1991.

Yardeni Research estimated that the average American household would spend roughly $3,100 on gasoline in 2022, based on price levels in December 2021. The price increases since then mean that households would have to pay about $2,000 more. The average household will have to spend $1,000 more on food this year, given the difference between price trends now and in December 2021. Combined, those increased costs for food and gas this year could amount to about $3,000. (NYT)

CPI ESSENTIALS VS WAGES

U.S. JOLTS: Job Market Tightness Loosens in January

The Bureau of Labor Statistics reported that on the last business day of January, the total number of job openings fell 1.6% (+55.7% y/y) to 11.263 million. The job openings rate, calculated as job openings as a percent of the sum of total employment and openings, eased to 7.0% from 7.1%.

New hires rose 0.1% (+12.9% y/y) to 6.457 million. The hiring rate held steady m/m at 4.3%. The number of job quits fell 3.4% (+28.4% y/y) to 4.252 million from the near record 4.403 million recorded in December. The quits rate edged down to 2.8% in January from a record 3.0% in each of the prior two months. Layoffs and discharges rose 12.0% (-10.6% y/y) in January to 1.414 million. The JOLTS figures date back to December 2000.

Private-sector job openings fell 1.1% in January (+57.8% y/y) to 10.234 million as the private-sector job openings rate eased to 7.4% from 7.5% in December. Openings in leisure & hospitality rose 115.1% y/y, manufacturing rose 63.8% y/y and professional & business services increased 42.2% y/y. Trade, transportation & utilities openings gained 32.8% y/y while construction sector job openings rose 27.1% y/y. Job openings in the nondurable goods sector gained 53.7% y/y while government sector job openings increased 37.9% y/y.

• There Will Never Be Enough Workers Even if all the people who left the job market during the pandemic come back, employers are still going to struggle to find employees

(…) In February of 2020, the labor-force participation rate was 63.4% and the unemployment rate was 3.5%. If those figures were the same in January of this year then about 3.9 million more people would have been counted as employed during the month. If each of those employment gains took away a job opening, there would still be 7.4 million job openings left.

There would also be about 5.8 million people who were unemployed, so the ratio of job openings to job seekers would be about 1.3. That would be higher than February 2020’s ratio of 1.2 or, for that matter, than at any point before the pandemic. And this ignores the fact that the demand created by more people earning paychecks and spending them might put even more upward pressure on payrolls.

It is of course possible that labor-force participation will exceed its pre-pandemic levels, sending the unemployment rate even lower—especially if wages rise to the point that more people are drawn into the job hunt. And many employers might step up investment in an effort to boost productivity and get more done with the workers they have. Even so, companies’ hiring woes don’t look as if they will be ending soon.

• Grad Salaries Hit $100,000. Co-Workers Are Annoyed.
• Manhattan Apartment Rents Soar to Record High With Demand Fierce Tenants paid a median of $3,630, the most for any month in more than a decade of data-keeping and up 28% from a year earlier

U.A.E. Pushes for Increased OPEC Oil Production The move marks a departure for the Persian Gulf producer after months of standing with Saudi Arabia and Russia

(…) The U.A.E. reversed its stance under pressure from the U.S., a key security partner and weapons supplier for the federation of Gulf emirates, said a person familiar with the talks. (…)

According to OPEC delegates, the U.A.E. didn’t inform other OPEC members of its position before Mr. Otaiba’s announcement Wednesday.

“This is not a coordinated action with Saudi Arabia,” said a Saudi official.

Saudi Arabia and the U.A.E. are the only two oil producers in the world that produce well below their capacity, giving them the ability to increase output by a million barrels a day or more to ease oil prices. The U.A.E. has about 1 million barrels a day of so-called spare capacity while the Saudis have about 2 million barrels a day. (…)

The U.A.E. didn’t say it was ready to act unilaterally outside of a deal struck last year with Russia and other oil producers. (…)

Once allies in OPEC, the U.A.E. and Saudi Arabia have frequently disagreed in recent years. The two clashed last year when the Emiratis pushed for a bigger production increase than the Saudis, at one point bringing OPEC to a deadlock.

• UAE says it is committed to OPEC+ agreement, monthly mechanism

The United Arab Emirates is committed to the OPEC+ agreement and its existing monthly production adjustment mechanism, its energy minister said on Wednesday, hours after the Arab country’s ambassador to Washington said it favors an output increase.

“The UAE believes in the value OPEC+ brings to the oil market,” UAE energy minister Suhail al-Mazrouei said on Twitter. (…)

• Dubai’s dirty money. The flow of Russian cash and crypto into the UAE has accelerated with the war in Ukraine, people familiar said. Under growing pressure to clamp down, authorities face a dilemma over whether to risk losing money underpinning the economy or maintaining confidentiality that havens like Switzerland can no longer sustain. Read more on Dubai’s darker side.

• Frackers Say Bottlenecks Slow Them From Ramping Up Shale companies say they are trying to help to fill a gap in global oil supplies after Russia’s attack on Ukraine, but wary investors, supply-chain issues crimp output

Russia, Belarus squarely in ‘default territory’ on billions in debt -World Bank

(…) The specter of Russia defaulting on $40 billion of external bonds – its first major such default since the years following the 1917 Bolshevik revolution – has loomed large over markets since a raft of sanctions and countermeasures by Moscow have largely cut the country out of global financial markets. (…)

Around half of Russia’s sovereign hard-currency bonds are held by foreign investors and Moscow must make $107 million in coupon payments on two bonds on March 16. Russian corporates have just under $100 billion in international bonds outstanding.

Foreign banks have exposure of just over $121 billion to Russia with much of that concentrated in European lenders, according to data from the Bank of International Settlements.

“I worry about what I do not see,” Reinhart said. “Financial institutions are well-capitalized, but balance sheets are often opaque … There is the issue of Russian private sector defaults. One cannot be complacent.” (…)

• Pimco stands to lose billions if Russia defaults on its debt
• Russia says China refuses to supply aircraft parts after sanctions China has refused to supply Russian airlines with aircraft parts, an official at Russia’s aviation authority was quoted by Russian news agencies as saying on Thursday, after Boeing (BA.N) and Airbus (AIR.PA) halted supply of components.

(…) Separately, a draft law published on Thursday showed the Russian government plans to order domestic airlines to pay for leased aircraft in roubles and could Russia, Belarus squarely in ‘default territory’ on billions in debt -World Bankbar them from returning planes to foreign companies if leases are cancelled.

Tesla hikes China, U.S. prices for Model 3 and Model Y cars

Electric-car maker Tesla Inc (TSLA.O) on Wednesday raised prices of its U.S. Model Y SUVs and Model 3 Long Range sedans by $1,000 each and some China-made Model 3 and Model Y vehicles by 10,000 yuan ($1,582.40), according to its website.

The company increased prices for the most affordable versions of Model 3 and Model Y about a dozen times last year in the United States, according to data tracked by Reuters.

The U.S. price of the EV maker’s Model Y Long Range car has jumped 20% from January 2021, along with a 10.6% hike for its Model 3 Long Range sedan during the same period. (…)

The Fed Expects a Soft Landing. Don’t Count on It. (Gary Shilling)

(…) The Fed’s 12 rate-raising campaigns since the early 1950s resulted in 11 recessions, with the only exception coming in the early 1990s. What makes the Fed’s job extra hard now is that the inflation rate is so high. (…)

Another sure sign of a recession is an inversion of the so-called yield curve, which happens when the interest rate on the 2-year Treasury note rises above that on the 10-year note. An inversion makes it unprofitable for banks and other financial institutions that borrow through deposits and other short-term markets while lending at longer maturities. That restrains lending and thereby depresses business activity. (…)

In this environment, investors should be extremely cautious. Stocks are still overpriced and vulnerable. Bond investors are worried about inflation. We may be entering a time when cash is king.

• Gundlach warns U.S. inflation may hit 10%, forcing Fed’s hand.

VW chief warns economic damage from war risks being worse than pandemic

Sweden urged to make joint decision with Finland on Nato

Norway hosts 30,000 Nato troops for exercises as Russia tensions rise

February CPI:

Our models suggest that inflation climbed further in February. Once again supply-chain disruptions from last year show in prices on used cars and trucks, likely adding about 1.14% to the all items y/y growth. The lagging contribution from increased shelter costs throughout last year put pressure on over-all living costs, hence OER contributed by 1% to headline inflation. We estimate that headline inflation will print above consensus at 7.9% with risk to the upside. We have estimated core inflation to print at 6.4%, in line with other forecasters.

The majority of pressure on oil and gas prices will first show in the March release. WTI crude oil has risen by 63% year-to-date and for March alone oil is up 28%. (Nordea)

Higher core and headline inflation in February

• Ukraine bans wheat exports. (AP)

• Dr. Pippa Malmgren:

Every core element of the food supply chain is affected by the war in Ukraine: Putin has dropped a bomb on the European agricultural sector. Russians have suspended fertilizer exports and Belarus declared a Force Majeure and cannot export their potash. Russia won’t allow it to be exported now either. Nor will the world buy anything from them as long as they are Russia’s lackeys.

To remove that much fertilizer from the world economy (Belarus provides 40% of the global supply of potash and Russia supplies 66% of ammonium nitrate), is to set the stage for massively reduced yields and possibly famine. On top of this, we now see the oil price up at $125 and heading a lot higher. This too will remove fertilizer from the reach of the common farmer.

In addition, Russia won’t sell their wheat and the world won’t buy it (or anything else due to sanctions). The good news is that alternative suppliers are coming online like, of all places, Michigan and Morroco They need to move much faster though.

• Major Freight Forwarders Suspend Russia Services DSV and Geodis also halted deliveries to Belarus as disruption from Russia’s invasion of Ukraine spreads in global freight markets

Switzerland-based Kuehne + Nagel International AG and Germany’s DB Schenker both said in customer advisories they are halting deliveries to and from Russia by air, land and sea. Denmark-based DSV A/S and France’s Geodis said they were also suspending deliveries to Moscow ally Belarus. (…)

Digital cargo marketplace Freightos said the disruptions in services and in transportation connections to Russia, along with rising oil prices, threaten to further drive up shipping costs for companies world-wide.

Some airfreight carriers are already introducing war-risk surcharges to cover rising operating costs, Freightos said in a report Thursday. The diversion of ocean freight shipments to other ports “is already resulting in pileups at origin ports in Europe and elsewhere, possibly causing congestion and increasing rates on these lanes,” the company said.

DHL, a unit of Deutsche Post AG , had earlier halted handling of inbound shipments for Russia.

DHL, Kuehne + Nagel, DB Schenker and DSV are the world’s four largest freight forwarders by revenue, according to research group Armstrong & Associates, and Geodis is the No. 9 logistics provider.

Container shipping lines A.P. Moller-Maersk A/S, Mediterranean Shipping Co. and CMA CGM SA had earlier this week suspended their freight services to and from Russia, with exceptions for foodstuffs, medical shipments and humanitarian aid. (…)

• Unfortunately, the rising price for essentials, like food and energy, combined with the decelerating growth in the money supply, presents world-wide recession risk. Energy bills jumped to 12.4% of global GDP this week, the highest on record, other than May through July 2008. Meanwhile, agricultural commodity prices are heading to record levels. These are growing risks. The changing terms of trade resulting from higher food and energy prices are absorbing a big piece of monetary growth, and may eventually force consumers to use their extra savings accumulated during the pandemic to make ends meet. We had oil spikes before, albeit larger than the current one, and all were followed by serious slowdowns in real economic activity. (Palos Management’s Hubert Marleau)
• Chinese Nickel Giant Tsingshan Faces $8 Billion Trading Loss as Ukraine War Upends Market Nickel prices soared, part of a self-reinforcing dynamic known as a short squeeze, prompting the London Metal Exchange to suspend trading in the metal.

Tools Of Financial Destruction

From Gavekal’s Charles Gave (via John Mauldin)

Russia is one of the world’s biggest producers of oil, gas, industrial metals, wheat and other commodities. And inevitably, there are large volumes of derivative contracts outstanding against Russian commodities, bought and sold by consumers and producers looking to hedge the risk of price changes in the underlying raw materials.

Despite efforts since 2008 to contain systemic risk, it is likely that exposure to derivatives on Russian commodities creates interlinked chains of risk that stretch throughout the system.

(…) [it is probable that] the lion’s share of the problems caused by the inability of Russian institutions to fulfill their commodity derivatives contracts will rebound on banks in the eurozone. The impact will be all the more severe given the losses likely to be sustained in financing the trade in physical commodities—a business in which French banks are very much to the fore. The probable result will be a whole new collapse in the eurozone bank index. (…)

The 2008 financial crisis took place because of the discontinuity that hit the US financial system when the Treasury refused to guarantee bonds issued by Fanny Mae. Today, the world may be facing another financial crisis because of the discontinuity that has hit the commodity derivatives markets because of the West’s imposition of financial
sanctions on Russia.

• Zoltan Pozsar on the Great Commodities Collateral Crunch in Funding Markets

Zoltan Pozsar, Credit Suisse AG’s head of short-term interest rates, is back to explain. As he puts it in a note published late on Monday, the problem is that — much like triple A-rated mortgage bonds were used as collateral to secure short-term funding before the Great Financial Crisis of 2008 — commodities have been used to secure financing that could now be stressed as Russia’s invasion of Ukraine sparks major price moves.

The issue isn’t necessarily commodities being suddenly valued at zero. (Although Urals crude and other Russian assets certainly could be.) But overall funding is being constrained as massive amounts of volatility cause market players to derisk.

“Crises happen either because collateral goes bad or funding is pulled away – that’s been the central lesson in every crisis since 1998. Now on to today… (…)

“Russia and Ukraine are the single -largest commodity exporters in the world. Russia, while only 5% of the world’s GDP, is financially deeply interlinked – it used to have $500 billion of FX reserves, and owes about as much in debt to the rest of the world, not to mention ‘off balance sheet’ debt that it owes to the world through derivatives when spot commodity prices rally, like they do now. It’s a bit more complex to de -SWIFT Russia than it was to de -SWIFT Iran… (…)

The books about 1997, 1998, and 2008 have FX pegs, default and leverage, and collateral and leverage as their central themes, respectively. The books about today’s market events will have commodities as collateral as the central theme. That’s where we need to dig…”

Mohamed A. El-Erian:

(…) Without an orderly end to the war, the disruptions to commodity markets and supply chains will intensify, as will “self-sanctioning” by the corporate world; Europe will be pushed into an inflationary recession; China and the U.S. economies will slow notably; some commodity-importing developing countries will risk foreign-exchange and debt crises; and the new stagflationary baseline for the global economy as a whole will be associated with a growing risk of an outright global recession.

Neither economic and financial policies nor markets are well positioned to deal with this combination, let alone overcome it.

Traditionally, stagflation has been one of the hardest challenges for policy making. It is compounded because the war in Ukraine came when the Fed had already fallen behind inflation realities and failed to build the much-needed flexibility for its policy responses. (…)

Markets have similarly been caught offsides. And it’s not just positioning. Already, market liquidity has proved patchy at times, including for U.S. Treasuries and, of course, individual stocks and commodities. In what fortunately remains a rarity for now, market malfunction has also reared its ugly head: Witness the London Metal Exchange’s suspension of chaotic nickel trading this week. (…)

New index shows U.S. inflation expectations shifting higher

A new daily index released on Tuesday by the London-based ICE Benchmark Administration (IBA) showed the expected pace of consumer price increases over the next year rising from 3.5% on Feb. 1 to 5.24% as of March 7. The index is based on trading in the roughly $300 billion monthly market for inflation-protected U.S. Treasury securities and in the $100 billion monthly market for inflation swaps contracts.

Inflation anticipated over longer 10- and six-year horizons has also turned abruptly higher since the onset of the Ukraine war, with rates as of Monday around 2.43% and 2.73%, respectively, significantly above the Fed’s 2% annual price increase target, the index shows.

Financial markets don’t see longer term inflation as problematic:

Here’s the spread between the 5Y breakeven and the 5Y-5Y:

China Growth Faces Dual Shocks from Oil Spike and Virus Spread

The economy will grow only 4.5% this year, economists at Goldman Sachs Group Inc. wrote in a note, a full percentage point below the gross domestic product target of about 5.5% set last week. Beijing will need to accelerate policy easing to keep growth from sliding further, they said, estimating the spike in oil prices alone could cut the GDP growth rate by half a percentage point.

The sudden rise in prices for oil, gas and other commodities will push up still-high producer price inflation, putting renewed pressure on manufacturers by squeezing profits and reducing funds for investment. On top of that, coronavirus cases in China — mostly the omicron variant — are climbing to levels unseen since the initial outbreak in Wuhan two years ago, a further threat to consumption.

The producer price index rose 8.8% from a year earlier, official data showed Wednesday, reflecting elevated cost-pressures on factories even before the most recent surge in crude costs was fully factored in. China will be hoping its ability to continue buying Russian energy and low consumer-price growth — which was unchanged at 0.9% — will help insulate its consumers and companies from geopolitical tensions. (…)

Core inflation, which doesn’t include volatile energy and food prices, slowed to 1.1% after remaining unchanged at 1.2% for three straight months. (…)

Some more numbers:

• February CPI was up 2.0% MoM annualized.
• Non-food CPI was up 2.5% annualized. It was up 2.1% YoY

Here’s How Surging Oil Prices Shift the Economic Outlook in Asia

Oil’s relentless surge above $125 a barrel threatens to stoke inflation across Asia, forcing central banks to decide whether to respond to higher prices with tighter policy, or hold off amid the blow to economic growth.

As a net importer of energy, Asia is vulnerable to the oil price spike triggered by Russia’s invasion of Ukraine. And with more than 40% of global exports stemming from the region, any sustained price increases will ripple throughout the world. (…)

• US puts pressure on shale industry to do ‘whatever it takes’ to ease oil crisis

Another New World!!!

9-11 changed the world. Now Putin, as Hubert Marleau aptly summarizes:

For all the scary unknowns Russia has brought the world, it has strengthened the will of NATO nations to defend itself, unshackling public finance to fund everything from enhanced military capabilities to alternative energy supplies. It will hasten the process of subdividing the global economy into competing blocs. It will harden economic policies toward global rivals. It will force them – especially – America, to introduce industrial policies to protect their edge or leadership in new technologies, including semiconductors, artificial intelligence, electrical vehicles and 5G wireless.