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Concerns that rising COVID cases and increasing inflation would derail corporate profits are not showing up in the numbers. The U.S. Stock markets rode the roller coaster back up last week, powered by banks’ heady earnings reports to close their best weekly showing in months.
Investors also were cheered by September’s 0.7 percent rise in retail sales. In part generated by the “back to school” buying surge, compared to a year ago, the headline number was up 13.9 percent. Retail sales, not adjusted for inflation, were up 13.9 percent last month compared to a year earlier, while inflation ran at 5.4 percent.
The Dow Jones Industrial Average climbed 1.6 percent for the week, its best weekly gain since June. The NASDAQ rose 2.2 percent and the Standard & Poor’s 500 index gained 1.8 percent, its strongest week since July.
Although stocks’ performance is robust at the moment, investors are monitoring the global supply line mess and watching energy prices. As those snares push price indexes higher, the U.S. Federal Reserve might decide to cut interest rates even sooner than expected, a move likely to deflate equity markets.
Inflation galloped at 5.4 percent in September, while benchmark Brent crude oil’s futures price rose for the eighth consecutive week, the longest such run since spring 1999… and the prices keep rising.
OIL: With the winter season coming to the northern hemisphere, and temperatures already falling in China—the world’s biggest energy consumer that has been hit with rising heating and energy demand and declining supply—the supply crunch hitting China and most of the world has not only pushed oil prices higher, it has elevated natural gas and coal prices to decades high. Today coal futures in China rose 7.8 percent.
And despite all the Climate Change talk, the U.S. Energy Information Administration reported that this year, for the first time since 2014, coal-fired generation is expected to surge by 22 percent.
Thus, the higher the cost of energy, the higher inflation will rise. And for consumers, with heating and gas bills going up, retail consumption will decline.
Today, Brent Crude was up 66 cents, closing at $84.99 per barrel and West Texas Intermediate climbed 55 cents to close at $82.84 per barrel.
TREND FORECAST: Again, the higher oil and gas prices rise, the less people will spend on consumer goods, restaurants, hospitality, etc. According to the Energy Information Administration, nearly half of U.S. households with homes that are heated with natural gas will be spending some 30 percent more this year than last year. And if this year is colder than last year, it could go up as much as 50 percent.
As we have reported, in Europe, natural gas prices are up over 350 percent this year, thus, there too consumers will be paying more for fuel and shopping less. This is following a summer of high demand and low supply, and that’s pulling some natural gas from U.S. producers on to ships headed for overseas markets.
Crude oil has climbed over 60 percent this year, which will sharply push up home heating oil prices.
Markets Up, Growth Expectations Down
“The global COVID-19 pandemic is still ravaging the region,” stated the International Monetary Fund as it downgraded their 2021 economic growth forecast for Asia from 7.6 percent to 6.5 percent.
However, despite the IMF downgrade, they still forecast Asia will be the fastest growing region globally this year.
Supporting our year-long trend forecast, they expect China’s GDP to grow 8 percent this year. The IMF also forecasts that India’s GDP will spike by 9.5 percent in the fiscal year that ends next March. Thus, much of the Asian expansion will be generated by the world’s two largest nations that account for some 2.5 billion people between them.
Last week, Japan’s Nikkei 225 climbed 1.8 percent, Hong Kong’s Hang Sen was up 1.5 percent, and China’s Shanghai Composite Index bumped up 0.4 percent. And despite China’s economy slowing down more than expected, with third quarter GDP up 4.9 percent from a year earlier, Asian equities keep rising.
Today China’s Shanghai composite was up 0.7 percent and its Shenzhen component climbed 1 percent. Hong Kong’s Hang Seng index jumped 1.49 percent and Japan’s Nikkei gained nearly 200 points.
Over in Europe last week, the Stoxx Europe 600 rose 0.7 percent, led not only by energy stocks but also by travel and leisure company shares, hinting at stronger consumer spending ahead. Today, the pan-European Stoxx 600 closed up 0.4 percent.
TREND FORECAST: Yes, despite the rise of COVID cases, draconian measures imposed upon populations to fight the COVID War, and spiking inflation (copper futures just hit an all-time high today) major companies continued to report strong third-quarter earnings.
With merger and acquisitions at all-time highs, there is less competition. Thus, profits will remain concentrated among the Bigs and until interest rates rise and the cheap money flow recedes, equities will continue to be artificially propped up.
Today, despite news that in September production of U.S. factories fell by the most in seven months, the Bigs continued to report strong third-quarter earnings, the Dow closed up nearly 200 points while the Nasdaq and the S&P 500 both climbed 0.7 percent.
Both the Dow and S&P are just 1 percent from their all-time highs.
GOLD/SILVER: As the dollar and Treasury yields eased, Gold edged up 0.30 percent to $1,770.04 per ounce while silver hit a five week high, spiking 1.97 percent to close at $23.66 per ounce. Again, we maintain our forecast that as inflation continues to rise, so too will precious metals.
And despite The Street’s expectations that the Fed will hold off raising rates—using yesterday’s weak U.S. factory production numbers as a signal that the Banksters will hold off on its bond tapering and rate raises—we disagree. However, when rates rise, it will put downward pressure on precious metals… short term. We forecast that when the cheap money flow dries up, equities and the economy will dramatically decline… which will in turn sharply drive up safe-haven gold and silver assets.
BITCOIN: Now that the U.S. has become the Bitcoin capital of the world, as we noted, it will prove positive for its price advance. It signifies stability and strong acceptance.
And now, ProShares Bitcoin Strategy ETF, ticker “BITO,” the first U.S. bitcoin-linked exchange-traded fund, began trading today. It rose 4.8% on the day to close at $41.94. This permits the speculation of the future price of bitcoin and has added more legitimacy to the coin.
However, there is a word of caution. ETFs can be manipulated by the Bigs!
For example, if a Big shorts the futures market with a big bet of tens of millions that the coin will go down, that can sink prices fast. The same if they place a big bet that the price will go up. Thus, expect price volatility, especially since the rise and fall of the coin is based solely on speculation and nothing at all to do with economic fundamentals.
TREND FORECAST: As we have long forecast, if bitcoin broke strongly above $50K per coin and steadily maintains the above mid-$50K range, it would move higher.
As we go to press, bitcoin is trading in the $63,000 per coin range.
We also maintain that a major factor in forecasting the future price of bitcoin and other crypto currencies is dependent on government regulations.
Thus, the more regulation, the lower the value of the coins, the less regulation, the higher the prices rise… especially as more small-time traders keep jumping into the crypto market.
(For more on bitcoin and other cryptocurrencies, please see our “TRENDS IN CRYPTOS” section.)