Bond selloff gathers pace, fears over new Covid strain, and Biden still looking for agreement on stimulus. Policy tighteningThe continued jump in energy and raw material prices is reinforcing bets that major central banks will soon be forced to react to rising inflation. Over the weekend Bank of England Governor Andrew Bailey appeared to strengthen the case for rising rates, citing vigilance on inflation expectations among other things. There is no sign of a decline in price pressures, with oil rising above $83 this morning and companies warning of continued supply problems. Further exacerbating the energy problem is investor caution about pouring money into oil extraction. Covid The number of new cases of Covid-19 in the U.K. is surging with 45,140 reported on Sunday, the most in about 3 months. This has led to a call from former U.S. Food and Drug Administration Commissioner Scott Gottlieb for “urgent research” into whether a new strain of the delta variant — know as delta plus — is more transmissible or has partial immune evasion. In the U.S., Anthony Fauci said that he expects regulators to consider a mix-and-match approach to booster shots. The delta variant continues to be the dominant strain in the country, with Colorado state epidemiologist saying it accounted for 100% of cases in the state where hospitalizations with the virus are the highest of the year. Reduced ambitions President Joe Biden said he would like his economic plan to address a “whole range of issues” while signaling he’s willing to drop the 10-year guarantee for programs. That is at odds with House Democrats, who want to focus on fewer, well-executed programs. While the president said there is no deadline for negotiations, political reality particularly in the Senate, means that Majority Leader Chuck Schumer’s end-of-month target is probably close to final call for a deal. A deal on the economic agenda would also allow the House to pass the infrastructure bill, giving the party a victory ahead of next year’s mid-term election that may see Democrats lose control of both the House and the Senate. Markets slipInflation concerns and fears over the growth outlook are putting stocks under pressure just as earnings season ramps up. Overnight the MSCI Asia Pacific Index slipped 0.2% while Japan’s Topix index closed 0.2% lower. In Europe the Stoxx 600 Index had dropped 0.4% by 5:50 a.m. Eastern Time, with luxury goods makers among the biggest fallers. S&P 500 futures pointed to a move into the red at the open, the 10-year Treasury yield was at 1.612%, gold dropped and Bitcoin was above $61,000. Coming up...U.S. September industrial and manufacturing production numbers at 9:15 a.m. are expected to have slowed due to the effects of Hurricane Ida. TIC flow data for August is at 4:00 p.m. Fed Governor Randal Quarles and Minneapolis Fed President Neel Kashkari speak today. State Street Corp. and Steel Dynamics Inc. are among the companies reporting results. Apple Inc. will unveil its first redesign of its MacBook Pro in five years. What we've been readingHere's what caught our eye over the weekend.
The story in commodities feels very similar. On the latest Odd Lots we spoke with Goldman's top commodity strategist Jeff Currie. We talked to Currie back in January, and he was a major bull then. But since then, even he's been taken aback by the extraordinary rally across everything. We'll post the full transcript shortly on the blog, but just like with our logistics conversations, he describes a cascading process where tightness in one area feeds problems in another.
Yeah, it's far more bullish than, you know, we could have ever envisioned. Let's take oil. The deficit that we can measure at the end of last month was running somewhere around 4.5 million barrels per day. That's nearly 5% of the market is in a deficit. That is such a large hole that OPEC, the U.S. administration... nobody's going to fix this. This is like, you know, the train is off the track and you're watching it in slow motion. But it's not just oil. Uh, you see it in copper -- copper inventories dropping 8%, 10% week after week. These are numbers I have never envisioned or never seen before. You know, and you can think about what is going on here. And I think, you know, it goes back to Tracy's point about that zinc smelter shutting down in Europe, that problems in one market create problems in the other. So we think about first it was coal in China, then it being gas in Europe. Then it became aluminum in China, which then impacts copper elsewhere in the world. And it keeps this chain reaction going in each one of these markets get tighter and tighter. So what is it about oil that makes this deficit so much larger than we could have ever envisioned... because you now have oil being used in lieu of both coal and gas because of the shortages in those markets. So bottom line is, you know, we see a lot of upside risk from these price levels, which are far greater than the price levels. We were forecasting when we spoke nine months ago. So bottom line, the underlying picture is far more bullish than what we had expected nine months ago, but the drivers of it are pretty much in line exactly what we thought just in a much larger degree than what we thought. So as you can tell, Currie is pretty alarmed and he doesn't see the general commodity picture easing for at least six months. Definitely worth listening to the whole thing, and thinking about the linkages to and parallels with the scene we're seeing in logistics. Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart Like Bloomberg's Five Things? Subscribe for unlimited access to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. - Bloomberg
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