This thread is about what is, and what the current policies are leading to. Not what should be.
The world set a new daily record yesterday.
2/6
Leading this record is the parabolic spike by Europe.
7-day quarantines are mandatory for positive cases.
3/6
And leading Europe to new records is the UK, Italy and Spain.
4/6
Many pointing to South Africa peaking. Remember this was after a 100x increase in 30 days. Maybe they hit testing limits after this massive rise? Consider:
The last two days SA cases are heading up again.
The rest of Africa is going vertical and also setting new records.
5/6
Asia, and especially China, has zero COVID, one case and everything closes.
Xi'an, a city of 13 million (>than NYC) is closed, because of 127 cases over one week!
6/6
Positive tests
US 10-day quarantine
Euro 7-days quarantine
Asia, zero policy (lockdowns!)
You think the global supply chain is "challenged" now, let's remove billions and billions of workdays from global production in the coming weeks and see what happens to it?
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The immediate pushback is familiar: this “supply shock” will hurt real growth, so the Fed should cut rates.
This well-known economist has been making exactly that argument.
3/4
That is only half the equation. A supply shock hurts growth, but it also raises inflation, so the real question is which side dominates.
In 2022, inflation rose more than real growth fell: the blue CPI line and arrow moved sharply higher while the green real-GDP bars and arrow moved modestly lower. The bottom panel shows the Fed’s answer: hikes, not cuts, as the federal funds rate moved from near zero in early 2022 to above 4% by year-end 2022.
Why? When inflation rises faster than growth falls, nominal growth (real GDP plus inflation) rises. If today’s oil shock does the same thing as 2022, the correct takeaway is not automatic cuts. It is possible that the Fed may have to stand pat or even consider hiking.
Ten seafarers have now been killed in 13 attacks on merchant vessels since the Iran conflict erupted on February 28 — more than the 7 U.S. servicemen killed in the war.
The focal point is shifting: can the Strait of Hormuz be reopened? Is the Administration pivoting to that mission?
Every day without a visible path to reopening, the market will price in more risk.
A 10% increase in energy prices that persists for a year would push global inflation up by 40 basis points and slow economic growth by 0.1-0.2%, International Monetary Fund Managing Director Kristalina Georgieva said.
So, what price measures "persists for a year?"
🧵
2/5
As the table below shows, crude oil futures prices for delivery into 2027 are trading in extreme backwardation.
3/5
Below is the calendar spread between the first contract (now April) and the 6th contract (now September).
As the bottom panel shows, this spread is -25%, a record since the mid-1990s when the contract specifications were last changed.