Pre-market stocks: inflation is skyrocketing. Enter the Omicron variant
“Tomorrow we will have a report on consumer prices that experts expect to be high again, in part due to energy prices and used car prices,” he said President Joe Biden said in a statement Thursday. Fortunately, in the weeks since collecting the data for tomorrow’s inflation report, energy prices have fallen. The price of gasoline at the pump has already started to drop across the board. national and actual pump prices in 20 states are now below the 20-year average. “
Economists are currently locked in debates over how the variant will affect the outlook for inflation. It all depends on the severity of the pressure and whether governments decide to implement stricter rules to limit its spread. But there are a few important things to consider.
Effect on demand for goods: If people start spending more time at home again, they are likely to spend less money on services like restaurant meals and haircuts, and more on products like electronics and housewares.
Demand for goods is already very strong, contributing to supply chain issues that have been a key driver of inflation. On that front, Omicron could make matters worse.
Effects on the supply of goods: Another factor that has kept supply chains from returning to normal has been the closure of factories in countries like Vietnam.
If factories around the world were forced to shut down or cut back on production due to fears of Omicron or growing infections, that could also worsen inflation.
Effect on energy demand: On the other hand, the demand for energy. With the reopening of economies, fuel purchases have skyrocketed. Soaring energy costs played a major role in the more general price hikes this fall.
If the restrictions come back and travel goes down, it would relieve the demand for energy, helping inflation to come down.
“This blow to energy prices means that the initial effect of a major Omicron wave will likely be disinflationary rather than inflationary,” wrote Neil Shearing, group chief economist at Capital Economics, in a note. to customers this week.
The big picture: If Wall Street doesn’t have a strong reaction to November’s inflation data, that’s probably why. Looking ahead, the outlook for inflation is bleaker and it will take some time to see how the situation unfolds.
The US dollar has jumped. The Chinese yuan is getting even better
China is grappling with a slowing economy, but its currency has rarely been stronger. The yuan is also outperforming the US dollar this year as the Fed prepares to raise interest rates. So what gives?
The latest: The Chinese currency climbed more than 8% in 2021, according to an index that tracks the yuan’s performance against 24 other currencies, reports my CNN Business colleague Laura He. Based on this gauge, it is only 0.3% of its previous record set in November 2015.
The yuan also gained ground against the dollar. It has risen between 2.4% and 2.8% this year against the greenback, depending on whether it is traded in China or abroad. Both versions are now at their highest levels against the dollar for three or more years.
Prior to December, the yuan’s gain this year was “the best in the world,” said Marc Chandler, managing director of Bannockburn Global Forex, an Ohio-based capital markets trading company.
Decomposition: The main reason for the yuan’s surge is the amount of silver entering China, in large part thanks to soaring exports, said Larry Hu, head of the Chinese economy at Macquarie Group.
The Chinese economy has been hit in recent months by disruptions in shipping and a worsening real estate crisis. Despite this, exports held up well. Shipments from China reached nearly $ 326 billion in November, a 22% jump from the previous year, according to government statistics released on Tuesday.
Another reason for the yuan’s rally, analysts say, is international enthusiasm for Chinese bonds as investors seek higher yields.
On the radar: Beijing seems increasingly uncomfortable with the yuan’s rapid appreciation. The People’s Bank of China on Thursday said it would increase the foreign exchange reserve requirement ratio to 9% from 7%, the second increase in the ratio this year. The move will force Chinese financial institutions to keep more foreign money in reserve and has been widely interpreted as an attempt to temper the yuan’s rise.
“It is desirable that the [yuan] remain largely stable [for] Chinese authorities, in our opinion, ”said Becky Liu, head of macro strategy for China at Standard Chartered Bank.
Could Elon Musk join the Great Resignation?
Want more proof that the Great Resignation has taken hold of American workers? Even the richest man on earth is considering quitting his job.
Musk is a notorious Twitter troll, and anything he says should be taken with a grain (or maybe a large spoonful) of salt.
But some investors – who have backed Tesla in large part because they view Musk as a visionary – may be taking him seriously. Shares of the world’s most valuable automaker fell ahead of market Friday before rebounding.
Decline: The number of American workers leaving their jobs remains high, although the pace of quits is slowing. In October, 4.2 million Americans left their jobs, down from September.
The Consumer Price Index for November is posted at 8:30 a.m. ET. The first reading of the University of Michigan consumer sentiment survey for December follows at 10 a.m. ET.
Coming next week: Central bankers from the Federal Reserve to the European Central Bank will make big decisions on how to tackle inflation.