The market is waiting for Fed to publish its latest views on inflation after the U.S. released its high consumer price index (CPI) data last week.
Because at present, multiple raw material markets have seen the phenomenon of inflation being shut down. What the Fed said is that " inflation is only short-lived" may come true.
Take wood as an example. The price of wood in the United States is often one of the iconic indicators of the US real estate market. One of the biggest timber gains in the past year.
However, wood has fallen 40% since its peak in May, and the once-popular real estate market in the United States has cooled to a certain extent. An index measuring consumer home purchase plans fell last month, and copper prices have also fallen from historical highs.
wood futures price picture: Bloomberg
Slowing price rise in some key raw materials does not mean that the overall inflation surge is a wrong signal, because global supply chain imbalances lead to insufficient supply and rising demand, which is still a major contradiction in the current global economy.
But some market signals provide reasons for the Fed to remain patient when it decides whether and when to reduce policy aid.
One of them is that the US Treasury market did not rise because of the inflation rate hitting a ten-year high. In addition, US stock doesn’t care about it. The SP 500 index continues to hit new highs, or just hovering at historical highs, showing strong resilience of bulls.
The Sevens Report Former Merrill Lynch trader Tom Essaye said: "Although inflation is high, the pressure has begun to ease. The market believes that the Fed's view is correct, and there is no need to worry about the Fed's rapid rate hike or the economy has inflation problems."
Industrial raw materials
Rich material prices have been causing concerns about inflation. Due to the growth of demand and optimism about the global economic recovery, the prices of raw material commodities have begun to show signs of continued decline after the sharp rise this year. Copper prices fell to their lowest level since April 26 on Tuesday—belowing $10,000 per ton.
market has been controlling the bulls recently. Chinese regulators reiterated last week that they would strengthen their commitment to monitoring commodity prices. Currently, China's domestic producer price index (ppi) has reached its highest level in more than 12 years. markets expect China to release national reserves of copper, aluminum and zinc to crack down on price speculation.
The Federal Reserve may soon start slowing down the pace of emergency asset purchases, which also boosted the outlook for the dollar and shook the backbone that supported copper and other commodities, which have been boosted by a weaker dollar over the past year.
In addition, since the price of hot-rolled steel coil futures in the Midwest in the United States hit a historical high in May, the price performance has been quite stable and has not hit a new high.
Although supply issues and rising demand caused by green energy transition maintain the long-term prospects of copper, investors' withdrawal appears to be accelerating as short-term fundamentals, macroeconomics and technological pressures increase. Art Hogan, chief analyst at
National Securities, said that the prices of many important industrial raw materials have peaked in the short term. It is estimated that the hot performance of raw materials will be temporary, and the total supply will meet the total demand in the future.
Real Estate Market
During the COVID-19 pandemic in the United States, many Americans are seeking to buy new homes in downtowns far away from densely populated areas, making demand in real estate market strong, and low interest rates also help maintain housing demand in sparsely populated areas.
But Gary Shilling, president of economic consultancy A. Gary Shilling Co, said there is a possibility that the U.S. housing market will slow down because the former U.S. housing supply is increasing, and many buyers have also retreated before high prices.
Gary Shilling believes that "the housing bubble is beginning to burst." Although many Americans may continue to prefer residential properties far away from big cities, as the COVID-19 epidemic subsides, many people will be willing to return to the city center.
And China is experiencing the most severe real estate capital ebb in history. This was initiated by China's banking regulators. China's banking system's capital credit for real estate began the most tense contraction in history, so that many Chinese real estate companies, including Evergrande , have experienced cash flow tension.
The de-realization of China's financial system will have negative impacts on many commodities, the most typical of which is steel, because 30% of the crude steel produced in China every year is used in real estate.
Timber
Full demand and insufficient supply have led to rising timber prices this year, which is one of the factors that building a house in the United States is more expensive than ever.
But the timber market is also showing signs of easing, as sawmills are increasing production, buyers suspended purchases, and timber futures continued to fall on Monday after hitting the biggest single-week drop in history.
Chicago Wood futures prices fell about 18% last week, setting the biggest drop since the main timber industry had data in 1986.
Timber often represents one of the inflation indicators of the US real estate market, and the decline in timber prices is conducive to lowering inflation data in the US real estate market. The extreme temperatures and drought of Brazil
Agricultural products
The extreme temperatures and drought in Brazil have caused concerns about the scarcity of crop supply at the beginning of this year.
However, factors such as the prospect of a better weather and the report of forced biofuel mixing by the Biden administration have helped reverse the recent price increase, with corn prices falling near their lowest levels since mid-April and soybean prices also falling.
China's pig cycle has returned to its peak before the outbreak of the epidemic in Africa. With the general decline in pork prices in China, the continued increase in China's inventory will begin to slow down, which means that China's purchase of soybeans may have reached a temporary high.
Of course, we should still pay attention to the impact of extreme weather conditions on crops. Droughts in South America and the United States cannot be taken lightly. In addition, China still has the possibility of local flooding this year. Moreover, as the global epidemic is lifted, global food demand may increase. "We are at a turning point, and many cyclical favorable factors have exceeded their peak if they have not disappeared on their own."
