THE DAILY EDGE: 10 MARCH 2022

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