Weekly Digest: U.S. Inflation Soars, Russia’s Gas Squeeze


5 minutes read

Jul 14, 2022

inflation reaches a new 40 year high in the us

14/07/22: U.S. inflation accelerates to 9.1%, Europe is on high alert over Russia’s gas squeeze, NASA reveals the most detailed pictures of deep space ever taken. And more.

Investment news

U.S. inflation accelerated in June to 9.1%, the largest yearly gain since the end of 1981, which will most likely keep the Fed on track for another big interest rate hike later this month. (Bloomberg)

The skyrocketing inflation numbers confirm that price pressures are rampant throughout the economy, and continue to erode consumer confidence and purchasing power.

Read our SPOTLIGHT to learn how high inflation can affect the global economy and your savings.

Gold prices edged down Thursday, with the metal’s outlook hurt by fears the Fed could go for a more aggressive interest rate hike this month to curb sky-rocketing inflation.

Here’s how the prices of gold, silver, platinum, and palladium have changed over the past week:

a table showing how the prices of precious metals have changed over the past week

Stocks declined after data showed inflation reached a new four-decade high in June, boosting expectations that the Fed will continue aggressively tightening its monetary policy. (WSJ)

Major stocks indices fluctuated during the session on Wednesday but finished lower, giving the S&P 500 its fourth straight day of decline.

As it attempts to reduce inflation from above 9% to its target of 2%, the Bank of England's independence is put to the ultimate test, according to Governor Andrew Bailey. (Reuters)

"I'll be quite simple about this: I think overwhelmingly the most important demonstration of Bank of England independence is that we return inflation to target. It's the biggest test of the system," Bailey said in a speech.

Some Conservative lawmakers said the BoE was too slow to raise rates because of the cost-of-living squeeze, which is a significant political issue in the race to succeed Boris Johnson as prime minister.

For the first time in 20 years, the euro and the dollar have reached parity, signaling the market’s belief that the European economy is heading for a severe downturn, partially caused by Russia’s war in Ukraine. (Euronews)

This essentially means that European businesses and consumers will pay more for the goods and services they import, while European exports will become less expensive in foreign markets.

euro and dollar have reached parity for the first time in 20 years

"Maybe on some level, parity of Euro versus US Dollar is just a number. But markets are made up of human beings who happen to care about levels, which gives parity a special psychological significance, not least since we haven't seen [parity] in 20 years. This is a big deal,” Robin Brooks, chief economist at the Institute of International Finance (IIF), said.

Read our SPOTLIGHT to see how geopolitical tensions can affect the price of gold.

Analysts laid out their doomsday scenarios if Russia turns off all the gas supply to Europe: Corporate profits could drop by more than 15%; The Stoxx 600 may see a market selloff of more than 20%; the euro would fall to 90 cents; Benchmark German bund yields could drop to 0% as a result of the rush for safe assets. (Bloomberg)

“We stress that these projections should be seen as rough approximations and by no means as a worst-case scenario. We could easily conceive economic disruptions that lead to more negative growth outcomes,” wrote Arend Kapteyn, chief economist at UBS.

Europe has been on high alert after Russia temporarily halted gas flows via Nord Stream earlier this week.

According to OPEC's first oil market outlook for 2023, despite the fact that most of its members are already pumping at maximum capacity, more crude will still be needed from the group, suggesting no relief to squeezed consumers. (Bloomberg)

OPEC would need to supply an average of 30.1 million barrels per day in 2023 to maintain a balance between supply and demand. That's 1.38 million a day more than the 13 member countries of the cartel produced in June.

opec would have to increase oil output amid energy conflict with russia

After experiencing severe financial distress, troubled German gas giant Uniper submitted a bailout application for government support, according to a statement from its Finnish majority owner Fortum. (CNBC)

Uniper was the first German energy company to raise concerns about rising energy costs as a result of decreased supplies of Russian gas.

In recent weeks, the company only received 40% of the contracted volumes from Russia, forcing it to source the replacement volumes at significantly higher costs.

elon musk refused to carry on with the twitter deal

Twitter v. Elon: Musk announced on Tuesday he was canceling his $44 billion deal to buy Twitter. The next day, Twitter filed a lawsuit against him in the Delaware Court of Chancery. (CNBC)

The lawsuit serves as the start of what may turn out to be a protracted legal battle as Twitter looks to hold Musk to his agreement to pay $54.20 per share for the company, and as Musk seeks to be let out of the deal.


Gold bulls: The price of gold has fallen to 8.5-month lows as a result of the strong U.S. dollar that weakened the metal’s safe-haven appeal. But it’s not a game-changer for gold, which can still surpass $2,000 by the end of the year, analysts say. (Kitco)

"Gold needs its own surge of sorts — about 17% now — to hit our 2022 year-end target of $2,050 per ounce. For now, our year-end 2022 target remains unchanged, as 17% is doable. With recession around the corner, and gold being quite cheap versus most other commodities, investors may begin to buy,” Wells Fargo's real asset strategy head John LaForge said.

Read our SPOTLIGHT to see what drives the price of gold today.

What else is happening

Sri Lankan President Gotabaya Rajapaksa fled the country and hundreds of protesters stormed the prime minister's office demanding his removal amid a devastating economic crisis in the island nation. (Reuters)

The country’s parliament is expected to name a new full-time president next week.

Sri-Lanka’s tourism-dependent economy was hit hart first by the COVID-19 pandemic and then a decrease in remittances from Sri Lankans living abroad.

ukraine, turkey, un and Russia are trying to reach a deal on grain exports

Ukraine said a deal to resume grain exports blocked by Russia appeared to be very close, raising hopes of an end to the standoff that has put millions at risk of starvation. (Reuters)

The talks in Istanbul between Ukrainian, Russian, Turkish and U.N. officials are underway.

Over 20 million tons of Ukrainian grain are stuck at the Black Sea port of Odesa and dozens of ships have been stranded due to Russia's blockade, part of what Moscow calls its “special military operation” in Ukraine.

And finally…

NASA unveiled the first batch of images and data captured by the James Webb Space Telescope. An exoplanet, an active star formation, and the deepest image of the universe ever taken, were among the pictures. (NASA)

nasa reveals the first batch on deep space pictures
Credits: NASA, ESA, CSA, and STScI

"Every image is a new discovery and each will give humanity a view of the universe that we've never seen before," Bill Nelson, NASA's administrator, said.


See you next week!


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