Despite a strong rally on Friday, major stock indices ended the week modestly lower on inflation fears and the prospect of much higher interest rates. As the war in Ukraine drags on, the prospect of major natural gas disruptions to Western Europe raised concerns. Consumer and producer inflation came down slightly in April but still remains high.
Food inflation is likely to remain high as global food shortages loom for the following reasons:
- The war in Ukraine is expected to take 15MM tons of grains and 60% of the worlds sunflower oil off the market.
- China is expected to have the worst wheat crop in history.
- The U.S. plains states are seeing poor growing conditions due to drought.
- Avian flu has caused the culling of 36 million chickens and turkeys.
- Indonesia has banned palm oil exports.
- India has banned wheat exports.
- Serbia has banned wheat, corn, flour and cooking oil exports.
Treasury yields fell with the 30-year bond yield at 2.987% and the 10-Year note at 2.821%. U.S. crude oil declined slightly to $110.18 a barrel and natural gas fell to $7.722 per MMBTUs. The U.S. dollar index rose to 104.46, the highest against a basket of currencies since 2002. Gold fell to $1810.30 an ounce.
In the economic numbers:
- China reported
- Exports in April were up 3.9% from a year ago, down sharply from the 14.7% year over year gain in March due to lockdowns and slowing demand.
- Consumer prices in April have risen 2.1% from a year ago, up from 1.5% in March.
- Producer prices in April were up 8% from a year ago, down from 8.3% in March.
- The Labor Department reported:
- The consumer-price index in April rose 0.3% in April. From a year earlier prices rose 8.3%, down from 8.5% year over year in March.
- Excluding volatile food and energy, core prices rose 0.6% in April and 6.2% from a year earlier.
- Gasoline prices fell 6.1% in April following a 18.3% rise in March.
- Food prices rose 0.9% in April.
- Used car prices fell -0.4% in April after rising sharply in the last year.
- The producer-price index in April rose 0.5% down from 1.6% in March and 1.1% in February. From a year earlier producer prices in April have risen 11.0%.
- Excluding volatile food and energy, producer prices rose 0.6% in April.
- Goods prices rose 1.0% while services were unchanged.
- First time claims for unemployment rose to 203,000, up from a revised 201,000 in the prior week.
- The 4-week moving average of claims, designed to smooth out volatility, rose to 192,750.
- For the full unemployment report go here: https://www.dol.gov/ui/data.pdf .
- The consumer-price index in April rose 0.3% in April. From a year earlier prices rose 8.3%, down from 8.5% year over year in March.
- The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf . Also, the EIA reported in the prior week:
- Field production of crude oil fell from 11.9MM BPD to 11.8MM BPD.
- Natural gas storage rose 76BN cubic feet and is below the 5-year average at this time of year.
- Baker Hughes reported the number of active oil rigs rose 6 to 563. The number of active natural gas rigs rose 3 to 149.
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Loren C. Rex, CFP®, MA Erik A Smith, AIF®
Founder / Emeritus President & C.E.O.
269-441-4143 517-795-2025
Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.
These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.
