U.S. and World News
The COVID-19 outbreak has led to global shipping delays from the world’s busiest ports in Asia. The late and slow vaccination campaign against COVID-19 in Asia is not only hurting their continent and its economy, but also the global supply chain threatening to push up prices and slowing down the post-pandemic recovery. Auto and Technology industries are among the top affected so far due to the semiconductor supply chain in Taiwan and Malaysia which has slowed down their shipments due to daily record highs of infections. This also worries certain countries such as the United States who recently recorded the biggest annual jump in inflation in factory gate prices and consumer prices since 2008. As many companies have already taken actions by increasing prices to adapt to inflation, it could be expected to see even higher prices to adapt to new global shipping delays. Let’s not forget what happened a couple months ago with the Suez Canal delaying shipments for over a week, which still has effects on global supply shipments. A similar situation is happening in the Yantian District of South China, where roughly 160,000 empty containers are waiting to be loaded as a result of COVID-19 restrictions being brought back due to high daily cases. According to the Freightos Baltic Index, it costs $6,341 to ship a 40-foot container to the West Coast of the US, which is up 63% since the beginning of the year.
Markets
- Markets were mixed this week. The S&P 500 increased by 0.43% and closed at an ALL TIME HIGH of 4,247.47. The Dow Jones decreased by -0.77% and closed at 34,480. Year-to-date, the S&P 500 is up 13.77% and the Dow Jones is up 13.65%.
- Yields were mixed this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.75% and 1.45%, respectively.
- The spot price of WTI Crude increased this week. Prices rose by 1.69% and closed at $70.79 per barrel. Year to date, Oil prices are up 45.89%.
- The spot price of Gold fell by -1.15% and closed at $1,876.70 per ounce. Year to date, Gold prices are down -7.87%.
Economic Data
- Initial jobless claims declined by 9,000 to 376,000 for the week ended, in line with expectations
- The trade deficit decreased to $68.9bn in April from an upwardly revised $75.0bn in March.
- Job openings surged by 998,000 for April vs 8,200 median forecast, prior revised 8,288 according to the Openings and Labor Turnover Survey.
- The job openings rate increased by 0.6pp to 6% and the hiring rate was unchanged at 4.2%
- Wholesale inventories rose by 0.8% in April, in line with expectations
- Wholesale sales ex-petroleum increased by 1.7% and the wholesale inventory-to-sales ratio remain at 1.22
- CPI month over month increased 0.64% for May vs expectations of 0.5%, prior +0.8%
- Core CPI month over month increased 0.74% for May vs expectations of 0.50%, prior 0.9%
- CPI year-over-year increased 4.99% for May vs median forecast of 3.5%, prior 3.0%
- Core CPI year over year 3.80% for May vs median forecast of 3.5%
- The University of Michigan’s index of consumer sentiment rose by 3.5pt to 86.4 in June preliminary report, above consensus expectations.
Fact of the Week
Congress is debating legislation (known as SECURE Act 2.0) that would require any employer with at least 10 employees who sponsors a 401(k) plan to automatically enroll eligible employees at a 3% contribution rate. Employees would retain the right to opt out of the plan (Source: SECURE Act 2.0)
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U.S. Covid-19 deaths have fallen to the lowest levels since March 2020. Many analysts point to this as a promising indication that we are in the homestretch of the epidemic, largely due to the help of vaccinations. According to the CDC, more than half of the U.S. population has reached full vaccination status, and almost 63% of U.S. adults have received at least one dose. Hospitalizations have also fallen not only thanks to vaccinations, but also due to the steadily improved treatment protocols. Despite the good news in the United States, the global pandemic is far from over, as Covid-19 continues to rage in less-vaccinated parts of the world. Epidemiologists say that high infection rates carry the risk of new and dangerous variants of Covid-19 emerging. Health officials continue to explore ways to prolong immunity and better protect people.
On Thursday, Senate Republicans unveiled their $928 Billion infrastructure offer. The Biden administration recently trimmed its proposal to $1.7 trillion from its original $2.3 trillion plan, so the two sides remain far apart. The Republicans plan which is dedicated to roads, bridges, rail, and transit systems for a period of 8 years, just received represents an increase of $300 Billion, from the $568 billion originally proposed. to $928 billion. President Biden will be hopes to making progress in the bipartisan talks over on Memorial Day. Although the Biden administration remains positive about the possible outcome, Republicans on the other hand panned the White House proposal to of $1.7 trillion, arguing that the proposal wasn’t specific enough. While there is progress between the White House and Republicans, the major difference between these two parties is how to at least partially offset the spending. yet to come, the form of spending. Republicans on one hand already rejected to raising taxes on companies, while on the other hand the White House has rejected the transportation user fee increase proposed by some Republicans.
Early Friday morning Israel and Hamas agreed to end 11 days of fighting by putting a cease-fire into effect. The truce, mediated by Egypt, sparked wide celebrations in Palestinian cities to rejoice the end of the violence that has wounded more than 1,900 individuals and killed at least 232 Palestinians and 12 people in Israel. Future violence is still likely as the truce alone will unfortunately not resolve the conflict between the Israeli-Palestinian militants. The agreement, however, can offer a period of calm to allow citizens a chance to regroup and return to their homes if they were displaced. President Biden said the United States would work through the United Nations and other international stakeholders “to provide rapid humanitarian assistance and to marshal international support for the people in Gaza and in the Gaza reconstruction efforts.” He also insisted that aid will not be provided to Hamas, as the United States has designated they are a terrorist organization.
On Wednesday, the Biden Administration announced its support to waive patent protections on Covid-19 vaccines in an effort to help boost production and distribution around the world. The move comes in response to the surge in coronavirus infections in countries that have struggled to obtain as well as distribute vaccines. Head of the World Health Organization Tedros Adhanom Ghebreyesus applauded the announcement stating this will be a monumental movement in the fight against Covid-19. The Pharmaceutical Research and Manufacturers of America held opposing feelings expressing this step will undermine their global response to the pandemic and compromise safety. The waiver is far from approved, however, as it must receive approval by the consensus at the World Trade Organization which contains 164 members.
U.S. shoppers boosted retail spending by nearly 10% in March, as a result of the federal-stimulus check, warmer weather, and a reopening economy. Retail sales jumped about 9.8% last month, becoming the largest monthly gain since May 2020. Shoppers spent more across several categories, where restaurants and bars are in the top registering double-digits gains in sales. Due to the past lockdown, consumers were not able to spend as much in restaurants and bars, which is the main reason why the entrainment industry reported double digits sales in March. Moreover, going down the list, clothing, electronics and sporting goods increased at physical and online stores. In more positive news, March industrial production increased while unemployment decreased thanks to positive outlook of the economy and reopening of businesses. Interesting enough, due to the reopening and the amount of American’s getting vaccinated debit and credit card’s expending graphs completely turned around compared to March 2020. In March 2020, the top 3 expenses in a credit and debit card were Groceries, and home improvement. Now, March 2021, those two are in the bottom of the list with Airlines, Gas, and Clothing being the top 3 most expenses in American’s credit and debit cards.
Friday morning, the La Soufriere volcano erupted on the Caribbean island of St. Vincent, making roughly 16,000 people required to evacuate their homes. Erouscilla Joseph, director of the University of the West Indies’ Seismic Research Center, has warned more explosions could occur as it is impossible to predict whether any potential explosions would be bigger or smaller than the first one. Two Royal Caribbean cruise ships and two Carnival cruise ships arrived after the explosions to help those that ad to evacuate their homes. The volcano last erupted in 1979.
Following with last week’s newsletter story, the Suez Canal has been freed and the Ever Given refloated after 6 days and more than 300 ships waiting to cross through the canal in Egypt. There was work needed to be done in the sand, where engineers were utilizing conventional earthmoving equipment working on shore. In addition, work was also needed to be done under water, where tugboats and dredgers were working on a daily basis. Dredgers are ships equipped with machines to remove underwater sand and sediment. On the other hand, 14 tugboats were used to pull and nudge the Ever Given away from the canal walls. Lastly, as many people are saying “the moon, the earth, and the sun helped”. According to the Associated Press, the full moon offers spring tides, which are higher and lower than average. Also, gravity affected tides during the straight-line alignment of the Earth, the moon, and the sun. The spring high tides added a few inches of water inside the canal, making removal easier.
On Tuesday, a container ship blocked one of the world’s busiest shipping arteries, the Suez Canal. This canal is a key trade route between Asia and Europe, as not only oil and natural gas is transported through it, but also clothing, electronics and heavy machinery. According to the maritime industry trade group Bimco, an average of 39 ships transit the canal which connects the Red Sea with the Mediterranean on a daily basis, and 19,000 vessels crossed the canal in 2020. Due to a dust storm where wind speeds reached 40 knots, the huge “Ever Given” carrying 20,000 containers ran aground, blocking the whole canal both ways. Although Egyptian authorities are working daily trying to dig out the huge vessel to make it partially refloat again, the issue has created concerns to analysts due to the delay in oil shipment. Dredging the “Ever Given” to make it refloat and taking weight off the ship by removing containers, fuel and ballast water, will help to open the canal for the 120 other boats waiting in traffic.
Oil prices fell Thursday afternoon due to the weighing fear of dwindling crude demand while stockpiles remain plentiful. The International Energy Agency this week has stated in their latest monthly report that an ample amount of global oil inventories and supplies will remain, which will ease some concern of possible shortages as well as a prolonged increase in gas prices at the pump.