Inflation Has Become a Global Problem. Where the U.S. Ranks

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This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.

U.S. Gets Ranked on Inflation

DB CoTD [Chart of the Day]

Deutsche Bank Research
June 10: Today’s U.S. inflation print continued the trend of upside surprises, coming in at 8.6% year over year. Notably, it is not meeting the Federal Reserve’s test of month over month deceleration that would force a slower path of rate hikes, with headline CPI at 1.0% MoM versus expectations of 0.7% and 0.3% in April.

Nevertheless, U.S. inflation doesn’t really stand out globally anymore. It is now just above the middle of the pack when we rank the highest to lowest using 111 countries covering the most up-to-date data available. It is 48th highest on this list.

Note that in June last year the U.S. was ranked 28th highest out of 116 and the Eurozone 84th (now only two spots below the U.S.). This was soon after the Biden fiscal package and associated helicopter money. Since then, YoY U.S. inflation has increased around three percentage points, but many other countries have seen it increase even more.

Just for statistical interest, the median global inflation is now 7.9% YoY. It was 3.05% last June.

Inflation is now truly a global phenomenon, with Asian economies generally the least effected. So the shock value from U.S. inflation data has lessened even if today’s print was pretty shocking in itself.

Jim Reid

Fickle Flows to Metals Funds

Mid-Year Flows

NDR Ned Davis Research
Money flowed out of precious-metal exchange-traded funds for most of 2021, with almost $11.5 billion leaving the group. Now, almost halfway through the year, $5.2 billion, or 45% of what left last year, has returned. Complicating the story, in the past month the group has seen $1.8 billion flow out.

Flows to broad-based commodity funds have been more consistent and have already reached 80% of last year’s flows.

Matt Bauer

Market Technician’s Lament

The June 2022 Collopy Letter

Carl M. Hennig
June 9: Although the fundamental profile holds some promise, the technical picture is not promising. Since Jan. 3 the chart of the

S&P 500
has shown no mercy. It features lower highs and lower lows and although down 15.8% as we write, it was in bear territory on May 20 (down 20% from Jan. 3). It subsequently has pulled itself together but, to be straight, looks terrible. Both its 50- and 200-day moving averages are in distinct down trends and will provide formidable resistance for any rally (or it will take a long basing period to ‘bend the curve up’). Looking at the splash on May 20, a valid observation is that that day was a selling climax. Yes, the S&P lifted almost 10% intra-day from its low, but it was accomplished on anemic volume—usually not good. If May 20 was the bottom, volume would have been immense coming out of the abyss to chew through the volume of the doubters that were continuing to sell.

John F. Collopy

Defense Stocks and Russia

Byron Callan’s Guest Commentary about Defense

Cumberland Advisors
June 7: There are three themes to consider in the 2020s for defense and Russia. (1) If Russia places more emphasis on rocket/missile forces in the 2020s, this will increase demand for missile defense programs. Raytheon’s exposure has been diluted by the merger with UTC, but other beneficiaries could include

Lockheed Martin

and

Kongsberg
.
We expect there will be upside pressure on the U.S. Patriot Force structure, which is now 14 battalions, plus another training one. (2) Ukrainian military modernization will be another theme, with the question of how to pay for it. (3) Russia will shrink as a factor in global defense markets. Russia has been a core supplier to Algeria, Vietnam, and India and has also made some sales in the Middle East (Egypt, Turkey, UAE). We are skeptical that U.S. and European contractors will replace Russia due to the cost and complexity of their products. The defense sectors of China, Turkey, and South Korea could instead benefit, but this will take years to play out.

Byron Callan

Dollar Rally Will Resume

Global Financial Trends

TS Lomboard
June 7: The ‘plumbing’ of the global financial system is holding up well—policymakers have learned from past errors and are prepared to address market liquidity dislocations in a timely fashion.

But the dollar rally is just pausing for breath: USD strength is set to resume as Eurasian growth shows clearer signs of deterioration and sticky U.S. inflation keeps the Fed on its toes.

The mix of sustained U.S. dollar strength and CNY [China yuan] weakness reinforces the pincer movement between Fed hawkishness and slowing global growth that is squeezing asset prices.

Konstantinos Venetis

Consumers’ Summer Splurge

The Weekly Five

Northern Trust
June 3: Consumers continue to splurge on services and experiences, with the most economically sensitive airline industry reaping the benefits. According to Delta and American Airlines, providers are even seeing some return in business travel, and the total TSA throughput data is well above year-ago levels and continues to creep toward the pre-pandemic trend.

The current dichotomy between the outlook referenced by airlines compared with the retail forecast is the perfect reflection of the continued shift in consumption patterns away from goods and toward services, even as we see significant increases in prices nearly across the board. Consumers are absorbing the inflated prices of these purchases at the expense of the household savings rate, suggesting a leveling off after this post-pandemic summer splurge. This corresponds to our outlook that U.S. economic growth will continue to slow into 2023.

Katie Nixon

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