We are now 4 for 4 with Fed presidents who are ready to start tapering in October, of course assuming the data satisfies them over the coming month. But this time we have a voting member, Atlanta Fed president Raphael Bostic who told Reuters “I would be comfortable with an October timeline for starting this.” And, he is “definitely looking to get this done as quickly as possible” along with what Bullard wants as Bostic is looking “towards the end of Q1” 2022 for this.
So more signs of stagflation. Yesterday we saw the news that Taiwan Semi is hiking prices by as much as 20%, less for its more sophisticated chips and about that for the commodity ones. The Drewry container rate from Hong Kong to LA reached a new high. Just this week I’ve seen these headlines:
“Due to the ongoing semi shortage, carmaker Daimler is extending a furlough scheme for workers at several of its factories in Germany and Hungary from next week.” (DPA)
“Honda is warning US dealers that vehicle deliveries to retailers could fall by 40% in the coming weeks compared with previous estimates, due to parts supply problems out of Asia, according to a letter sent to retailers.” (Autonews)
“Japan’s Rohm Co. (Toyota supplier) says that vital semi’s for automobiles and industrial machinery will likely remain in short supply at least throughout next year.” (BN)
“Mazda Motors Corp. this week said it has suspended operations at Japanese manufacturing plants in Hiroshima and Hofu until Friday due to the uncertainty about the resumption of air cargo services.” (Freighwaves)
“Ford is once again cutting production of its F-150 pickup truck and two other vehicles next week due to the ongoing global shortage of semi chips.” (CNBC)
“Volvo Cars will have to temporarily halt production at its plant in Skovde, Sweden due to a shortage of semi’s.” (TT)
DREWRY HONG KONG-LA CONTAINER RATE
While copper prices have come off its 10 yr high, the price of aluminum is at a 10 yr high.
ALUMINUM
Here is a chart of US steel hot rolled coil
Tokyo said its CPI in August fell .1% ex food and energy y/o/y vs the estimate of a .2% decline. As stated here many times, a sharp drop in mobile phone charges is the main reason. The offset was a sharp jump in hotel prices but that is because last year’s subsidies were not repeated. Either way, Japan is experiencing the same aggressive wholesale price pressures as all of us but a more limited ability in passing it on to consumers, partly due to Covid and the current restrictions. The data had no impact on bonds today for either nominal JGB’s or their inflation protected ones.
German experienced huge import price gains in July. They rose 2.2% m/o/m and 15% m/o/m. Import prices are up a whopping 21% year to date annualized and we know the Germans HATE inflation. Maybe this is why Germans are buying gold at the fastest pace in 10 years, //www.kitco.com/news/2021-08-27/German-physical-gold-purchases-increase-to-a-decade-high.html. As import prices don’t move markets like CPI, the 10 yr German inflation breakeven is only up slightly at 1.45% but that is just 3 bps from the highest since 2014.