George Lucas, Raiz Group CEO
Last week, Wall Street stocks had their best week in nearly three months as they shrugged off a lengthy period of lacklustre trading on strong corporate earnings, which offset the markets nerves around inflation.
We may not be out of the woods yet — as volatility in October can remain high and there are worries about surging energy prices, supply chain issues and companies failing to pass on higher costs to consumers – but at the moment investors are focusing on US earnings.
Last week’s lift in stocks was not limited to the US, with Europe performing in line with the US. However, be aware that, looking ahead, energy price inflation will likely impair growth in Europe and Asia, more than in the US.
US retail sales surge in September
Official data showed US retail sales unexpectedly rose last month, putting US Government bonds again under pressure after the likelihood increased that the US Federal Reserve would pull back its crisis-era support for the world’s largest economy, causing interest rates to rise.
The data showed retail sales increased by 0.7 per cent in September , beating the expectations of many pundits that had forecast a decline of 0.2 per cent in the numbers.
Meanwhile, headline consumer price inflation in the US is running at a 13-year high, with September CPI data revealing Americans paid more for rent, food, and a range of other goods in the month.
Sharp jump in energy prices
Oil and coal prices race higher as Europe and Asia grapple with a natural gas shortage, intensifying talk in the market that central banks will err by raising rates in an economic slowdown.
The lift in energy prices is also driving up global metals prices. Copper is close to a 10-year high while industrial metals are up on concerns the global energy crunch would hit production.
The refining of these metals, like zinc and aluminium, consumes a heap of energy so the rapid rises in the prices of gas and coal is increasing costs for mines and refiners from Chile to China.
Investors are eyeing these metals on expectations that output cuts due to rising power prices will outweigh the potential lower demand should sentiment shift when interest rates move higher.
Copper is a case in point. Inventories of physical copper on the London Metal Exchange dropped to their lowest levels since 1974 this week, according to Kingdom Futures, in a sign of strong demand. Copper is also benefiting ,in part, from its growing use in clean energy technologies like wind turbines and electric cars, making it a target for speculators and mining companies.
Australia employment tumbles in September
In Australia, jobs plunged in September, with the economy losing 138,000 positions in the month. The unemployment rate only edged up to 4.6 per cent as more people fell out of the job market.
Looking ahead, with hours worked starting to rebound, I suspect that the end of lockdowns due to higher vaccination rates will result in a rapid recovery in the labour market over the coming months.
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