Trail 22 — From “Transitory” to “Long”
Feb 25 2022 (Editor — Sylvia Lo)
The big story this week is obviously the Russia Ukraine war. Russian forces attacked Ukraine after President Vladimir Putin ordered a “special military operation” to demilitarize the country, prompting international condemnation and a U.S. threat of further “severe sanctions”. Markets reacted and have tumbled worldwide.
In a nationally televised address, Putin said that Russia doesn’t plan to “occupy” its neighbour but said the action was necessary after the U.S. and its allies crossed Russia’s “red line” by expanding the NATO alliance.
This only adds to our inflation woes. Initially thought to be transitory, inflation now looks like it’s here to stay. As previously discussed, inflation is well above the Fed’s target rate for the first time in a long time.
U.S. businesses and consumers are already forecasting that price rises will be around for longer than expected. Companies like HCC Inc., an agricultural equipment parts maker, are planning for two to three years of higher costs. Mendota, an Illinois-based supplier to manufacturers, are also anticipating a double-digit per cent increase in its wage bill.
Two-year U.S. breakeven rates on Treasury inflation-protected securities — or the difference between those yields and the ones on typical Treasuries — climbed as much as nine basis points to 3.76%, the highest since Bloomberg started compiling the data in 2004.
Mortgage Unemployment
U.S. home mortgage lenders have spent much of the last two years hiring. Now they appear to be laying off workers.
The number of people working as brokers, often used as a proxy for total home lending employment, surged to around 130,000 since late 2019 (up 50%), according to the U.S. Bureau of Labor Statistics. That’s right around the highest level since just before the financial crisis.
According to the Mortgage Bankers Association, with borrowing becoming more expensive, applications to refinance mortgages have fallen about 45% over the previous six months. Mortgage rates have now reached 3.92% last week.
While mortgage lending standards have not dropped and credit remains good (for now), mortgages will be an interesting space to look at in the coming months.
Editor’s Corner
Suisse Secrets
The Suisse Secrets report is just the latest in a long list of scandals surround Credit Suisse. Another round of leaked data details their dealings with drug lords and corrupt government officials. Last month, it sacked Chairman Antonio Horta-Osorio, for breaching COVID quarantine rules to use the bank’s private jet to attend Wimbledon tennis matches.
Higher wages vs more benefits
A recent survey conducted by The Harris Poll reported that 51% of workers saw increased employer benefits over the last six months. Improved dental and vision cover, health and wellness allowances and permanent work from home options were among the most reported expansions. Retention and recruitment costs have been ramping up as most companies struggle to backfill positions caused by the pandemic. As the world reassessed their priorities in this post covid world, people are again topping the list
The Unsocial App
What’s a trump media launch without some controversy? This Monday, Donald Trump’s Truth Social App launched to great fanfare. The app quickly climbed to the number one on the Apple store, but later rescinded on accounts of bugs and long waitlists. In true Trump fashion, users had no idea what they were signing up to as the terms of services page was down. But perhaps the most hilarious of the blunders was the accidental plagiarism of another company’s logo.
Matthew Summers, Trailar’s head of marketing is now “seeking legal advice to understand next steps and options available to protect our brand”.
Until next week.
Financial markets are fascinating, and I see them amalgamating the subjective and objective worlds. They are constantly evolving, follow no predetermined path and much like humans and society in general, their behaviour at most times is irrational. Yet, their day to day functioning is seemingly driven by facts and reasoning. They are filled with plenty of stories of triumph, tragedy and comedy. Every day they are thoroughly analyzed and tried to make sense of. Yet, their future steps or directions cannot be predicted based on history. They follow a random walk. Therein lies their beauty.
If enjoying making sense of their randomness is as appealing to you as it is to me, each week, I briefly recap a few stories that captured my interest, with embedded source links available for those who wish to read more.
