WILL EUROPE’S ENERGY CRISIS AFFECT THE US?

There are fears Europe’s energy crisis will become global affecting the US.  The current crisis is self-induced, the result of legislative fiat that has made fossil fuel exploration extremely expensive amplified by the politics of climate change.  As discussed several times, renewables are not delivering the benefits optimistically promised by proponents as the wind is not blowing and the sun is not shining as projected.

While I have little knowledge of European politics, poll after poll in the US does not rank climate change as a primary concern of voters…not even in the top 10.  According to Pew Research Center inflation is the top concern of the American voter.  Sixty three percent of respondents are “very concerned” about rising prices.  Only 29% are fearful about the ability to find a job.

Inflation has been virtually absent for the last 14-15 years and many—especially those involved in the financial markets—have not experienced the potential destruction of rising prices.  It will be a new and very uncomfortable environment.

Friday’s data indicated the PCE, which the Fed uses for its inflation target, rose 0.4% from a month earlier and 4.3% from a year ago, the largest annual increase since 1991.  The core PCE—ex food and energy—rose by 0.3% for a second month.  The measure was up 3.6% from a year earlier, also the greatest increase since 1991.

This increase occurred in the month that energy prices fell.  What will be September’s readings?  Will the data greatly surprise on the upside given the surge in energy costs amplified by even greater bottlenecks?

In 1991 the 10-year Treasury was yielding about 6.2% and the yield curve between the 2 year and 30-year Treasury was about 350 basis points.  Today the 10-year is yielding about 1.55% and the slope between “2’s and 30’s” is about 145 basis points.

Has the Democratic Party committed hara Kari as Green Energy is one of their top three priorities?  As noted above, voters do not rank climate change as a top ten concern.  Inflation is the greatest concern.

It is not a political statement to write the Administration is attempting to change American business and society by the greatest proportion in at least two generations.  Will its attempt fail because of rising inflation, an inflation rate that is partially fueled by its ambition to make society green?

Only the future can answer this question.

Just as an aside, FRB Chair Powell has redefined transitory stating that current supply disruptions “will ultimately prove temporary.”  But I ask is not everything “just transitory?”

Commenting on Friday’s market activity, financials and energy led equities higher.  Treasuries were essentially unchanged.  Oil was up about 1.0%.

The economic calendar is comprised several tier I indicators including Durable Goods Orders, ISM Non-Manufacturing Index and various employment surveys ending Friday with the release of the BLS report. How will the data influence perceptions?

Last night the foreign markets were mixed.  London was up 0.17%, Paris up 0.17% and Frankfurt up 0.02%.  China was up 0.90%, Japan down 1.14% and Hang Seng down 2.19%.

The Dow should open nominally lower on supply shortages of “everything from semiconductors to coffee to energy.”  The 10-year is off 10/32 to yield 1.50%.

 

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.