over 1 year ago • 3 mins
Data out on Wednesday showed that US consumer prices continued to climb by more than expected last month.
What does this mean?
Earlier this week, a report emerged claiming that US consumer prices were 10.2% higher in June than the same time last year. And while it turned out to be a hoax, it certainly seemed plausible enough: the US government has, after all, been downplaying the latest inflation numbers ahead of the real update. It was so plausible, in fact, that stocks slumped following its release.
Fake or not, it wasn’t far off: consumer prices rose 9.1% in June, well above May’s 8.6% and April’s 8.3%. That was mostly down to – you guessed it – energy and food prices, which were 42% and 10% higher than the same time last year. And even though salaries have been rising lately, clearly they haven’t been rising fast enough: the data showed that inflation-adjusted hourly wages fell 3.6% – the biggest drop since 2007.
Why should I care?
For markets: Are stocks about to rally?
Higher prices and lower salaries could lead to a drop in consumer spending, which is bound to be flagged as a concern this earnings season. But Deutsche Bank doesn’t think it’ll lead to another stock market selloff: the bank argues that the writing has been on the wall for a while now. In fact, Deutsche has pointed out that the market has historically rallied during an earnings season that follows a selloff like the one we’ve just seen.
The bigger picture: The almighty dollar.
This data only makes it more likely the Fed will hike interest rates substantially again later this month, which will continue to make the US dollar an appealing prospect for international savers and investors. The ECB’s reluctance to hike rates, meanwhile, is having the opposite effect on the euro. That might be why the euro fell below the value of the greenback for the first time in 20 years on Wednesday.
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The International Energy Agency (IEA) released a report on Wednesday estimating that Russian oil exports dropped off last month.
What does this mean?
Ever since Russia’s invasion of Ukraine, Europe – by far the country’s biggest oil export market – has gradually been phasing out its oil. And while the Middle East and elsewhere are still buying the country’s slippery elixir, they haven’t been taking enough to make up for Europe’s principled stand: the IEA estimates that Russian daily exports fell by 250,000 barrels in June.
But Russia has had one saving grace: the price of oil averaged $117 a barrel last month, as global supplies continued to fail to keep up with a post-pandemic rebound in demand. So even though Russia exported far less of the dusky earth juice, the value of its oil exports still rose by $700 million to over $20 billion in June.
Why should I care?
The bigger picture: More demand, please.
Oil’s higher price is already impacting demand for the commodity by more than the IEA first thought, which might be why the agency has lowered its estimates for global demand. It now thinks demand will overtake pre-Covid levels next year rather than this one, and also warned that faltering demand poses a real risk to the global recovery – not to mention the economic stability of emerging economies.
Zooming out: It’s up to the governments.
The US is urging Middle Eastern producers to help boost supply, but it’s not quite that simple: Saudi Arabia and the UAE only have the capacity to increase their daily output by 2.2 million barrels a day. That might sound like a lot, but the world gets through about 4 million an hour. So the IEA is recommending governments create their own policies to limit energy use, in a bid to keep their economies on track.
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