Producers of metals and other raw materials saw a decline as inflation nerves drove up the relative value of the dollar. Spot prices for triuranium octoxide, the most widely traded form of uranium, hit $92.50 a pound on Monday, continuing a torrid run that has seen prices of the nuclear fuel more than double since Russia invaded Ukraine. One strategist said faith that the Federal Reserve could engineer a soft-landing may be overstated in the valuations of cyclical sectors. 'The markets could be on the path of immaculate disinflation to an economic soft landing,' said Kyle Rodda, senior market analyst at online brokerage Capital.com. 'The Fed is projecting as much.' Disinflation typically coincides with a period of slowing earnings growth, which is not reflected in earnings estimates, Rodda said. 'It suggests that between rates markets and earnings expectations, something's got to give.' [a9a63cfd]
Producers of metals and other raw materials saw a decline as Treasury yields reached multiyear highs. The increase in yields is seen by some strategists as a sign of potential inflation and further tightening of monetary policy by the Federal Reserve. Brent Schutte, Chief Investment Officer at Northwestern Mutual Wealth Management, stated that the Fed is concerned about a wage-price spiral similar to the one experienced between 1966 and 1982. Despite a slight moderation in wage inflation, Schutte believes that wages are still too high and the labor market remains strong, which could lead to increased inflation. In China, the economy rebounded in the third quarter, growing at a rate of 4.9%. This growth was attributed to government stimulus boosting retail sales and stabilization of factory activity after a period of weakness. [0c06691a]
BlackRock's chief investment strategist, Wei Li, warns that inflation will rebound before ultimately falling as wages and global conflicts push prices higher. Li believes that inflation will be on a rollercoaster ride, rather than falling in a straight line. Inflation cooled to 3.1% in January, but Li warns that after goods deflation runs its course, persistent wage pressure could push inflation higher. Geopolitical conflict could also contribute to higher prices. Li predicts that inflation will go through a rollercoaster pattern before rebounding next year. [42210a35]
Michael Burry, the investor of 'The Big Short' fame, warned in April 2020 that inflation would spike again, and recent data shows that prices have indeed jumped. Burry accurately predicted the first inflation surge and expects a second one due to a recession, rate cuts, and stimulus spending. Inflation in March 2024 reached 3.5%, above the Federal Reserve's 2% target. While Burry's recession call has not materialized, inflation has ticked up due to factors such as resilient consumer spending, robust employment growth, and government spending on infrastructure and student-debt relief. It remains to be seen if inflation will continue to climb, but Burry's warning may still hold true if a recession occurs and the Fed cuts rates. [025431fe]