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Commodity prices have fallen since our May 18 report, and we expect an increase in Forex volatility, especially for Emerging Markets...

Niggling doubts...Will $3.5tn make any difference, or create another problem for the next generation?

The passing of a $3.5tn US spending bill and $1tn being spent on infrastructure projects has global implications, directly and indirectly. It has global inflationary implications, and potentially raises questions for Fed policies, as such large government spending will add to inflationary pressures; what impact will it have on long end yields?

Commodity prices have fallen since our May 18 report, and we expect an increase in Forex volatility, especially for Emerging Markets...

According to the New York Fed, Total US Household debt increased by $313bn in Q2, with Mortgage debt the biggest driver, rising by $282bn to $10.44tn by the end of June. Credit card debt increased by $17bn, following a drop off in 2020. Almost half of renters fear imminent eviction.

At the beginning of 2020, the average year on year rent increase nationally for the US was around 1% for both one and two bedroom properties. At the end of July 2021, the year on year increase for a one bed was close to 7% and two bed 8¾%....The increases are not broad based; in numerous cities, rent prices have been in decline, some by as much as -20%...

Low freight prices made it cheaper to pay for last minute deliveries, with minimum delays, than to pay to hold stockpiles ready for production, thereby encouraging low inventory levels. In a similar way to OPEC, these companies have now found their teeth and been more aggressive with pricing...

Global freight is dominated by just 10 container shipping companies and, prior to COVID, the performance of these companies was dependent on global economic conditions; post-pandemic, they are now in a position to dictate their prices. Shipping freight costs have continued to rise; in August, one ocean carrier is quoting $32,000 to ship a group of standard containers from Shanghai to Los Angeles....Last week, Maersk upgraded its guidance for the rest of the year, to show its expectations for EBITDA to reach between $18bn to $19.5bn, an increase of nearly $5bn over previous expectations.

In our June 30 report we cautioned, ‘Markets may have become too complacent over Emerging Market currency price moves...China is a net importer of goods from many Southeast Asian countries and with the Chinese economy slowing, and the Yuan weakening following PBOC moves in both RRR rates, Emerging Market currencies (particularly Asian EM) may continue to come under pressure, raising the cost of commodity and material imports.