BEIGE BOOK CHARACTERIZES THE ECONOMY AS EXPANDING AT A MODEST OR MODERATE RATE

The Beige Book or the statistical compilation utilized at the upcoming Fed meeting characterized the economy as expanding at a “modest or moderate rate” and some districts noted growth slowed citing supply constraints and concerns over the delta variant.

Price increases were driven by supply shortages, transportation bottlenecks and labor constraints as “most districts reported significantly elevated prices.”  The Fed further stated “many firms raised selling prices considerably and indicated a greater ability to pass along cost increases to customers amid strong demand.”

It is widely anticipated the Fed will begin tapering in November or December.  How will the long end of the bond market respond, a response that will be perhaps amplified given current inflation rates and budget shortfalls?

Long dated Treasuries again sold off yesterday as the yield curve steepened approximately 7 basis points.

Oil is continuing its relentless advance as inventories fell as opposed to rising as forecasted.  The narrative is rising that the current energy crisis is self-induced.  The Administration is demanding Saudi Arabia to increase production.  The oil rich country said it is cannot as it claims it is producing near peak capacity.  The Administration has also requested Russia to increase natural gas shipments to Europe.  Russia first said yes and then reneged demanding some sanctions relief.

The President and 13 high ranking officials including numerous cabinet members are attending a climate summit in about two weeks.  It is widely expected that both Europe and the US will agree to various proposals that will further exacerbate the energy crisis and do little to impact the environment especially as both China and India are exercising no restraint given their insatiable demands for energy.

As noted many time Green pledges are popular but green policies drive public revolt given increased costs and reduced supplies.

Will energy prices and potential shortages become the next civil crisis as already the case in Britain, France, Russia and China?

Commenting about yesterday’s market activity, the average were bifurcated as the Dow rose because of energy and financials while the NASDAQ was flat.

Last night the foreign markets were down.  London was down 0.53%, Paris down 0.39% and Frankfurt down 0.04%.   China was up 0.22%, Japan down 1.87%  and Hang Seng down 0.45%.

The Dow should open nominally lower on reevaluation of corporate earnings, elevated inflation and the outlook for China’s property sector.  The 10-year is off 1/32 to yield 1.67%.  Oil is down about 0.5%.

 

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