Fuel for Thought
At the start of October, we were facing a fuel crisis, one not caused by a lack of the liquid energy but those available to deliver it. By mid-month, the picture below of my local filling station, shows some degree of a return to normality. There was no queue, the price not unreasonable and no limit on how much you could have – although I suspect that just filing your tank would be the expectation as opposed to those fools who were seen trying to put fuel into shopping bags!
While I realise there still maybe some fuel shortages in the south-east of England, sanity seems to have prevailed over the irrational panic buying earlier this month – not that shortages of a variety of goods, aren’t going to be with us for a while.
It seems that a number of company executives are preparing us to live with not always getting what we want, when we want it. The ‘C’ word that is Christmas (I can only apologise for mentioning it in October) has cropped up in the supply chain debate; remember it was also mentioned when we were treated to the image of one of the world’s largest container ships stuck, wedged in the Suez Canal, back at the end of March this year.
Whether it’s the ability to produce semiconductor chips or deliver essential items or indeed toys, there is clearly a distribution issue as demand ramps up to coincide with economies re-opening as the pandemic subsides. Of course, the pandemic taught countries and companies that globalisation and just-in-time inventory management was no longer as easy to manage as it was previously. Onshoring has become more popular as it gives greater control over supply but at what cost – in terms of quantity and price? Additionally, are there sufficient people with the requisite skills available to fulfil these commitments?
Of course, this is what is sustaining the ‘is the inflation spike transitory’ debate and part of what is unsettling financial markets.
Financial markets have had much to chew over this month and like last month, have not digested recent economic data too well. This week’s US Consumer Price Index release was roughly in line with expectations and while month-on-month numbers have moderated, the annual, year-on-year number of 5.4%, remains elevated not least due to the increase in energy costs as shown below.
Energy prices may well be influenced by the severity of the upcoming northern hemisphere winter but the long-term impact on inflation is unclear.
Ahead of the much-vaunted COP26 meeting in early November, recent energy disruption might serve to remind attendees that managing the transition to clean energy is of high importance.
Cash raised at the end of August on both funds has served as a decent buffer to recent financial market volatility. Bond markets continue to take it on the chin, Deontay Wilder-style as yields continue to rise in fury to 1.06% for ten-year gilts at the time of writing, whereas they were 0.73% a month ago. Dynamic’s avoidance of debt as an asset class continues as sub-inflation yields do not merit an investment option for an inflation-plus objective. Elsewhere, inflows have been used to top up exiting positions.