Friday, March 4, 2022

Morning Note: Commodities on a Tear

This will be a short note, followed a little later today by our weekly macro video.

Globally, stocks are continuing their descent on the back of the Russia/Ukraine war and its implications across markets and economies.

On its face, the situation engenders a global angst that, the latest positive data aside, can indeed produce a serious headwind for economic activity. Yet, while one would typically associate a slowing economy with low inflation, the produce to the world that characterizes the afflicted region creates a not-small inflationary backdrop to it all.

The Bloomberg Commodity Index is up 14% over the past week alone:

As I said in Tuesday's note, "stagflation" (inflation amid a stagnating economy) is likely to become a familiar word should this keep up.

"...while, indeed, sufficient global angst will provide a reflexive tightening that would typically alleviate inflation pressures, the nature of today's particular angst has natural resource implications that serve to potentially offset whatever fear-inspired relief may be in the offing.

The sum of that assumption would be the term "stagflation." High inflation amid stagnant economic conditions.

You'll begin hearing that word aplenty the longer present circumstances prevail..."

Asian equities had a rough go of it overnight, with all but one of the 16 markets we track closing lower.

Europe is of course bearing the brunt of current geopolitical conditions; all 19 of the bourses we follow are notably in the red this morning.

US stocks are also down across the board: Dow down 483 points (1.43%), SP500 down 1.55%, SP500 Equal Weight down 1.54%, Nasdaq 100 down 1.66%, Nasdaq Comp down 1.83%, Russell 2000 down 1.77%.

The VIX sits at 33.95, up 11.52%.

Oil futures are up 4.57%, gold's up 1.06%, silver's up 1.03%, copper futures are up 2.32% and the ag complex (DBA) is up 0.80%.

The 10-year treasury is up (yield down) and the dollar is up 0.99%.

Among our 38 core positions (excluding cash and short-term bond ETF), 9 -- led by base metals futures, energy stocks, treasury inflation protected bonds gold and silver -- are in the green so far this morning. The losers are being led lower by uranium miners, ALB (lithium miner), German equities, Disney and MP (rare earth miner).

"What happens in China matters in the United States. What happens in Europe matters in China. And what happens in the United States matters in Europe. Understanding your local economy or your domestic economy is not good enough anymore. If you don’t understand the global macroeconomic trends at work, you’re at a substantial competitive disadvantage to those who do."
--Roche, Cullen. Pragmatic Capitalism

Have a great day!

PS: Clients: Nick, Ryan and yours truly will be away from the office this afternoon to late next week (annual family ski trip). Please don't hesitate to reach out to Dan, Kylie or Gladys should you need attention while we're gone...

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