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Beijing Is Trapped: China Producer Prices Surge At Fastest Pace In 26 Years

Beijing Is Trapped: China Producer Prices Surge At Fastest Pace In 26 Years

China’s factory-gate prices grew at the fastest pace in almost…

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This article was originally published by Zero Hedge

Beijing Is Trapped: China Producer Prices Surge At Fastest Pace In 26 Years

China’s factory-gate prices grew at the fastest pace in almost 26 years in September, adding to global inflation risks and putting pressure on local businesses to start passing on higher costs to consumers.  

The producer price index climbed 10.7% from a year earlier, the highest since November 1995, data from the National Bureau of Statistics showed Thursday, far higher than the 9.5% gain in August and hotter than the 10.5% expected.

On the other hand, consumer prices rose 0.7% last month from a year earlier, lower than a 0.8% gain in the previous month., but Bloomberg notes that for now consumer inflation remains in check because of falling pork prices, even though the removal of most virus controls by the end of September may have helped to boost household spending.

“The widened gap between PPI and CPI means greater pressure for upstream sectors to pass on rising costs to the downstream,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong.

And, as we previously warned, the situation is about to get much, much more serious. If the historical correlation between Coal prices and PPI holds, were may be soon looking at a tripling of China’s PPI, which from 10.7% Y/Y in September, is about to soar to 30% or more.

Needless to say, if Chinese PPI does hit 30%+, even if CPI somehow stay in the single digits, the results would be catastrophic: profit margins would collapse, the plunge in already thin cash flows would lead to even more defaults and supply chain bottlenecks, even as the scramble to obtain commodities “at any price” keeps pushing costs – and PPI – even higher.

Meanwhile, if producers do try to pass on some of the costs and CPI spikes (the gap between CPI and PPI was already at record wide before the recent surge in coal prices) as it did in the early 90s…

then Beijing will have social unrest on its hands.

There are early signs that producers are starting to pass on higher costs to consumers: the largest soy sauce maker in the country said this week it plans to raise retail prices of its products. At least 13 companies listed on China’s A-share market have announced price hikes this year to address rising costs and tight supply, China Securities Journal reported Thursday.

And all this is happening as China’s property sector desperately needs a massive liquidity infusion which is – you guessed it – inflationary.

And while China may be facing its first “galloping inflation” PPI print since the early 90s, it’s only downhill from there, because as Citigroup wrote over the weekend, power cuts (with over 20 provinces, making up >2/3 of China’s GDP, have rolled out electricity-rationing measures since August) and contractionary PMI “seem to suggest China could enter into at least a short period of stagflation.”

“We think the risk of stagflation is rising in China as well as the rest of the world,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd.

“Persistent inflationary pressure limits the potential scope of monetary policy easing.”

And so, Beijing is now trapped: if it eases, inflation – already at nosebleed levels – will soar further crushing margins and sparking a deep stagflationary recession; if it does not ease, the property market – already imploding – will crater.

Tyler Durden
Wed, 10/13/2021 – 23:25







Author: Tyler Durden

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US markets scale fresh highs on upbeat earnings, housing data

S P 500 and Dow Jones closed at record highs for the second consecutive day on Tuesday October 26 while Nasdaq rallied as quarterly results kept the…

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S&P 500 and Dow Jones closed at record highs for the second consecutive day on Tuesday, October 26, while Nasdaq rallied as quarterly results kept the markets in high spirits.

The S&P was up 0.18% to 4,574.79. The Dow Jones Industrial Average rose 0.04% to 35,756.88. The NASDAQ Composite Index gained 0.06% to 15,235.71, and the small-cap Russell 2000 was down 0.72% to 2,296.08.

Traders were further encouraged by the Commerce Department’s positive economic data, which showed new home sales jumped 14% to 800,000 units in September, the highest level since March. However, higher home prices still remained a major worry.

Energy and utility stocks led gains on the S&P 500 index, while industrials and communication services stocks were the bottom movers. Nine of the 11 sectors of the index stayed in the positive territory.

General Electric Company (GE) stock rose 2.19% in intraday trading after reporting its third-quarter earnings. Its adjusted profits were 57 cents per share, above the analysts’ estimates of 43 cents a share. However, its revenue fell by 1% YoY to US$18.4 billion in the quarter.

Shares of United Parcel Service, Inc. (UPS) were up 7.38% after reporting better-than-expected results. Its revenue increased by 9.2% YoY to US$23.2 billion in Q3, FY21.

Lockheed Martin Corporation (LMT) stock tumbled 12.48% after it trimmed its revenue forecast. Its net sales fell to US$16.02 billion in Q3 from US$16.49 billion in the year-ago quarter. In addition, it lowered its revenue forecast for FY2021 due to supply woes.

In the energy sector, Exxon Mobil Corporation (XOM) surged 2.30%, EOG Resources, Inc. (EOG) rose 1.39%, and Occidental Petroleum Corporation (OXY) gained 1.28%. Devon Energy Corporation (DVN) and Baker Hughes Company (BKR) rose 2.37% and 2.88%, respectively.

In utility stocks, NextEra Energy, Inc. (NEE) increased by 1.57%, Southern Company (SO) jumped 1.03%, and Exelon Corporation (EXC) rose 1.10%. DBA Sempra (SRE) and AES Corporation (AES) advanced 1.24% and 1.59%, respectively.

In the communication sector, Alphabet Inc. (GOOGL) rose 1.33%, Facebook, Inc. (FB) fell 4.52%, and Twitter Inc. (TWTR) declined 1.27%. Match Group, Inc. (MTCH) and News Corporation (NWS) plummeted 2.51% and1.17%, respectively.

Also Read: General Electric Co (GE) revises guidance upward after Q3 profits

Energy and utility stocks led gains on the S&P 500 index, while industrials and communication services stocks were the bottom movers.

Also Read: Raytheon (RTX) raises sales guidance, 3M (MMM) narrows EPS outlook

Nine of the 11 sectors of the S&P 500 index stayed in the positive territory.

Also Read: Eli Lilly (LLY), Novartis (NVS) profits up on robust sales growth

Futures & Commodities

Gold futures were down 0.70% to US$1,794.10 per ounce. Silver decreased by 1.55% to US$24.212 per ounce, while copper fell 0.71% to US$4.4958.

Brent oil futures traded flat at US$85.44 per barrel and WTI crude was up 0.85% to US$84.47.

Bond Market

The 30-year Treasury bond yields were down 2.06% to 2.042, while the 10-year bond yields fell 1.55% to 1.610.

US Dollar Futures Index increased by 0.15% to US$93.953.






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Failure To Bury “Transitory” Inflation Narrative Risks Sparking Biggest Fed Error In Decades: El-Erian Warns

Failure To Bury "Transitory" Inflation Narrative Risks Sparking Biggest Fed Error In Decades: El-Erian Warns

Authored by Tom Ozimek via The…

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Failure To Bury “Transitory” Inflation Narrative Risks Sparking Biggest Fed Error In Decades: El-Erian Warns

Authored by Tom Ozimek via The Epoch Times,

Failure on the part of the Fed to toss its stubbornly-held “transitory” inflation narrative and act more decisively to rein in persistently high price pressures raises the likelihood the central bank will need to slam on the brakes of easy money policies much more forcefully down the road, risking avoidably severe disruption to domestic and global markets, according to Queen’s College President and economist Mohamed El-Erian.

In stark contrast with the mindset of corporate leaders who are dealing daily with the reality of higher and persistent inflationary pressures, the transitory concept has managed to retain an almost mystical hold on the thinking of many policy makers,” El-Erian wrote in an Oct. 25 op-ed in Bloomberg.

“The longer this persists, the greater the risk of a historic policy error whose negative implications could last for years and extend well beyond the U.S.,” he argued.

Consumer price inflation is running at around a 30-year high and well beyond the Fed’s 2 percent target, to the consternation of central bank policymakers who face increasing pressure to roll back stimulus, even as they express concern that the labor market hasn’t fully rebounded from pandemic lows.

The total number of unemployed persons in the United States now stands at 7.7 million, and while that’s considerably lower than the pandemic-era high, it remains elevated compared to the 5.7 million just prior to the outbreak. The unemployment rate, at 4.8 percent, also remains above pre-pandemic levels.

At the same time, other labor market indicators, such as the near record-high number of job openings and an all-time-high quits rate—which reflects worker confidence in being able to find a better job—suggest the labor market is catching up fast. Businesses continue to report hiring difficulties and have been boosting wages to attract and retain workers. Over the past six months, wages have averaged a gain of 0.5 percent per month, around twice the pace prior to the pandemic, the most recent jobs report showed.

Besides measures of inflation running hot, consumer expectations for future levels of inflation have hit record highs, threatening a de-anchoring of expectations and raising the specter of the kind of wage-price spiral that bedeviled the economy in the 1970s. A recent Federal Reserve Bank of New York monthly Survey of Consumer Expectations showed that U.S. households anticipate inflation to be 5.3 percent next year and 4.2 percent in the next three years, the highest readings in the history of the series, which dates back to 2013.

El-Erian, in the op-ed, argued that the Fed has “fallen hostage” to the framing that the current bout of inflation is temporary and will abate once pandemic-related supply chain dislocations will abate.

“It is a framing that is pleasing to the ears, not only to those of policy makers but also those of the financial markets, but becoming harder to change,” he wrote.

“Indeed, the almost dogmatic adherence to a strict transitory line has given way in some places to notions of ‘extended transitory,’ ‘persistently transitory,’ and ‘rolling transitory’—compromise formulations that, unfortunately, lack analytical rigor given that the whole point of a transitory process is that it doesn’t last long enough to change behaviors,” he wrote.

El-Erian said he fears that Fed officials will double down on the transitory narrative rather than cast it aside, raising the probability of the central bank “having to slam on the monetary policy brakes down the road—the ‘handbrake turn.’”

“A delayed and partial response initially, followed by big catch-up tightening—would constitute the biggest monetary policy mistake in more than 40 years,” El-Erian argued, adding that it would “unnecessarily undermine America’s economic and financial well-being” while also sending “avoidable waves of instability throughout the global economy.”

His warning comes as the Federal Open Market Committee (FOMC)—the Fed’s policy-setting body—will hold its next two-day meeting on November 2 and 3.

The FOMC has signaled it would raise interest rates sometime in 2023 and begin tapering the Fed’s $120-billion-a-month pandemic-era stimulus and relief efforts as early as November.

Some Fed officials have said that, if inflation stays high, this supports the case for an earlier rate hike. Fed Governor Christopher Waller recently suggested that the central bank might need to introduce “a more aggressive policy response” than just tapering “if monthly prints of inflation continue to run high through the remainder of this year.”

“If inflation were to continue at 5 [percent] into 2022, you’ll start seeing everybody potentially – well, I can’t speak for anybody else, just myself, but – you would see people pulling their ‘dots’ forward and having potentially more than one hike in 2022,” he said in prepared remarks to Stanford Institute for Economic Policy Research.

The Fed’s dot plot (pdf), which shows policymakers’ rate-hike forecasts, indicates half of the FOMC’s members anticipate a rate increase by the end of 2022 and the other half predict the beginning of rate increases by the end of 2023.

For now the market is pricing in a more hawkish Fed response in 2022

Tyler Durden
Tue, 10/26/2021 – 16:49









Author: Tyler Durden

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Kimberly-Clark Forecasts Price Increases as Inflationary Pressures Accelerate, Supply Chain Disruptions Worsen

In yet another sign that inflation pressures are proving to be a lot more than just transitory, Kimberly-Clark (NYSE: KMB)
The post Kimberly-Clark Forecasts…

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In yet another sign that inflation pressures are proving to be a lot more than just transitory, Kimberly-Clark (NYSE: KMB) — the maker of staple household goods such as Kleenex tissues, Huggies diapers, tampons, and toilet paper— has sounded the alarm over impacts of rapidly accelerating prices and supply chain headaches.

Shares of Kimberly-Clark tanked to a six-month low after the company cut its annual forecast due to rising inflation and supply chain disruptions. Third quarter net income stood at around $469 million, which equates to approximately $1.39 per share, against the $472 million— or $1.38 per share reported during the same period one year ago. The company reported an adjusted earnings per share of $1.62, which failed to meet consensus estimates calling for $1.65.

“Our earnings were negatively impacted by significant inflation and supply-chain disruptions that increased our costs beyond what we anticipated,” said Kimberly-Clark CEO Mike Hsu. As a result, Hsu warned that the company will be implementing price increases across a variety of goods in an effort to offset implications of supply chain woes and subsequent acceleration in commodity costs. “We are taking further action, including additional pricing and enhanced cost management, to mitigate these headwinds as it is becoming clear they are not likely to be resolved quickly,” he added.

However, Kimberly-Clark is far from being the only households goods company to sound the alarm over the effects of global supply chain disruptions and a persistent inflationary macroeconomic environment. Recall, General Mills, P&G, among others, have all issued warnings about impending cost-push inflation, as companies contend with margin compression that is further exasperated by ongoing labour shortages.


Information for this briefing was found via Kimberly-Clark. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Kimberly-Clark Forecasts Price Increases as Inflationary Pressures Accelerate, Supply Chain Disruptions Worsen appeared first on the deep dive.



Author: Hermina Paull

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