Morning Rundown | "It’s not just about oil; watch food and fertilizers"

Mar 18, 2022

∙ Paid

Market Rundown

Good Morning: The day started out with everything except the dollar weaker. Now stocks are mostly positive, Gold dumped but bounced nicely (these are getting more common) and Bonds continue to move with shorter rates higher and longer term rates lower.

We have been saying this for some time, and not just because our friends at ZH say it. Now the bond yield curve is inverting, with the shorter dated bonds yielding more than their longer dated brethren.

The short end of the curve is directly influenced by Fed policy, which has turned hawkish. The longer end is also influenced by Fed policy to some extent, but is more interested in long term prospects for the economy. Right now short term rates are above long term rates. We have gone from normal, to flat, to inverted. That says recession now, QE later. But that still does not guarantee inflation is under control1. It signals stagflation followed by recession followed by more easy money. Rate hikes now translating to more QE later.

Cheers

Bank Report: It’s not just about oil; watch food and fertilizers

Oil prices are up 40-45% since the start of the year. But the spike in other areas (natural gas, fertilizers, agricultural commodities) is also massive.
Thanks to compounding shocks, food inflation could rise to levels last reached a decade ago… back when massive food price spikes caused political upheaval in some parts of the world
in DM economies, food is usually less than 15% of inflation baskets
in EM economies, food often accounts for over 30% of price indices
Russia’s ban on fertilizer exports could have ripple effects across supply chains. EM economies import 50-80% of certain types of fertilizer

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