After the release of US May CPI data last week, many investors are no doubt eager to know the Fed's latest view on the inflation outlook this week. However, the latest signs in some market corners may have revealed the answer that the Fed may give at that time.
Take wood, for example, which has seen one of the biggest increases in commodities over the past year, as Americans stranded at home have invested more money in the transformation of their living environment. Since peaking in may, however, timber prices have plummeted by 40%. The noisy real estate market has also cooled, with the index, which measures consumers' home purchase plans, falling sharply last month. In addition, copper prices have begun to fall from their all-time highs.
Although the prices of some key raw materials have fallen or slowed, it does not mean that the surge in headline inflation data is a wrong signal-there are still many parts of the economy where supply constraints and strong demand are likely to keep prices at multi-year highs. But for the Fed, which is about to discuss a road map for exiting easing, these market signals may be enough to justify continued patience.
It may also explain why market participants did not panic about the US CPI data that entered the "fifth era" last week: the US bond market remained poised after last week's hot inflation data, with 10-year yields hitting a more than three-month low at one point. There was no imagined panic sell-off in US stocks, with the S & P 500 hitting a record closing high for three consecutive days after the inflation data were released.
"while the inflation indicator is indeed high, the current situation in many areas shows that price pressures are beginning to ease," said Tom Essaye, founder of market research firm The Sevens Report and a former lin securities trader. "this allows investors to say, 'Gee, the Fed is right. The Fed knows what it is doing, and we don't have to worry about the Fed raising interest rates too quickly or inflation in the economy.'"
Here are some of the reasons why market watchers think the peak of inflation fears is over:
Metal rising cooling
Rising raw material costs have heightened concerns about inflation for most of the year, with commodity prices soaring during the year amid rising demand and optimism about the global economic recovery.
Over the past few weeks, however, these bullish bets have suffered setbacks: LME copper has recently fallen below $10000 a tonne, and the benchmark price of hot-rolled coil steel futures in the Midwest has failed to rise further since hitting a record high in May. The Bloomberg spot index of commodities fell again on Monday.
Art Hogan, chief strategist at National Securities, said, "what we are seeing in many commodities is that prices have peaked and fallen, which is a sign of increased supply. We see that the prices of many important industrial raw materials have peaked in the short term. Although this may be temporary by economic definition-it just means that at some point aggregate supply meets aggregate demand. "
The enthusiasm for buying a house has faded.
During the pandemic, there was a surge in demand in the US housing market as more and more Americans sought to buy new homes outside densely populated downtown areas. Low mortgage rates also fuelled a buying frenzy.
However, A. Gary Shilling&Co. President Gary Shilling noted that the current hot U. S. real estate market, has shown obvious signs of cooling. These signs include an increase in the number of homes on the market, a decline in new building permits and consumers starting to flinch in the face of high house prices.
"Bubble is starting to break," Shilling said in an interview with the media last week. "while many Americans may continue to choose homes far from the big cities, others will return to the city center as the epidemic subsides. In addition, rising prices mean that affordability remains a problem, although high prices may stimulate the supply of new buildings. "
Wood prices have plummeted.
Strong demand for housing and tight supply contributed to a surge in timber prices earlier this year, which is one of the main reasons why the cost of building homes in the United States is higher than ever before. However, this field is no longer popular.
Timber futures continued to fall on Monday after the biggest weekly decline on record last week, as sawmills began to increase production and buyers delayed purchases. Last week, wood prices on the Chicago futures market plummeted by about 18%, the biggest drop in major contracts since 1986.
"short-term prices will eventually adapt to supply and demand," said Marc Odo, a client portfolio manager at Swan Global Investments. When you talk about commodities such as agricultural products or timber, prices are by no means static. "
Agricultural products began to fall.
Earlier this year, extreme temperatures and droughts in agricultural countries such as Brazil sparked concerns about tight crop supplies. However, the rally in the agricultural market has also begun to reverse with factors such as improving weather conditions and the Biden administration's report on the mixed authorization of biofuels.
Chicago corn futures fell as much as 6.4 per cent to $5.705 a bushel on Monday, nearing their lowest level since mid-April. Soybeans and wheat have also fallen sharply recently.
The National Weather Service predicts that rainfall and average temperatures in the Midwest will exceed normal levels within 8-14 days, which will help ease the drought before July, a critical period for crop growth. Rainfall has also alleviated the drought in the Canadian prairie, which is conducive to the growth of rape and wheat. Ukraine's corn production is expected to increase this year, and Argentina has raised its yield forecast as the harvest season progresses.
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