Inflation grows at quickest rate since 1982
Inflation grew at its highest rate since June 1982, putting pressure on the Federal Reserve ahead of this week’s meeting. FX volatility rebounded in recent months as a result of COVID-19 cases worldwide. Initial weekly jobless claims in the United States hit its lowest mark since 1969.
Inflation soars above expectations
Inflation rose 0.8% in November, equal to a 6.8% increase on a year-over-year basis. This marks the fastest inflation growth since June 1982, focusing even more attention on the Federal Reserve meeting this week. Core CPI, which excludes food and energy items, grew 0.5% in November and 4.9% on a year-over-year basis, which fell in line with market expectations. Energy prices continue to lead the way in increases, as prices in the sector rose by 33.3% since November 2020. Americans are seeing the effects of rising prices, as gasoline is up 58.1% from a year ago. Used car and truck prices also saw a substantial 31.4% increase in prices (YoY), while food prices jumped 6.1% (YoY). All three major equity indices were down on Friday morning after the inflation news but rebounded throughout the afternoon.
The COVID-19 omicron variant, which has now spread to over 50 countries worldwide and at least 19 U.S. states, has contributed even more to FX volatility over the last few months. Germany and the United Kingdom are both struggling with confirmed cases of COVID-19, as both countries’ 7-day rolling average of confirmed cases reached near-record highs. As FX volatility continues to be a trend, Chatham is seeing many companies either starting FX hedging programs or revisiting existing programs to make sure they are still meeting objectives.
After mixed data highlighted the Bureau of Labor Statistics’ November jobs report on the first Friday of the month, the Labor Department released October job openings and job quits last week. October job openings jumped by about 400,000 to 11 million. October marks the fifth straight month that job openings came in over 10 million. October’s total also came in just under July 2021’s record of 11.1 million job openings. The leisure and hospitality industry led the way in openings, as employers posted 251,000 jobs bringing the total to 1.8 million. Manufacturing and education also saw considerable increases in openings, while job openings decreased by 74,000 in government. The number of Americans that quit their jobs fell from September’s record 4.4 million to 4.2 million. Despite the slight decrease in quits from last month, job quits are still hovering at levels much higher than pre-pandemic, as Americans continue to search for new opportunities over concerns of COVID-19, higher wages, and more flexibility.
Weekly initial jobless claims for the week ended December 4 dropped to its lowest total since 1969. Initial claims came in at 184,000, well below market expectations of 211,000. Continuing claims for the week ended November 27 increased by 38,000 to 1.99 million.
The week ahead
After inflation came in above projections, the market will pay close attention to the Federal Reserve meeting this Tuesday and Wednesday. The Fed is expected to announce that they will double the speed of tapering, ending their asset purchases in Spring 2022, rather than the initial target of Summer 2022. Other economic news to be released this week includes the NFIB small-business index, the Producer Price Index (PPI), and the U.S. retail sales report.
(Related insight: Watch the on-demand webinar, "Treasury 2022: Opportunities, Priorities, and Trends")
Subscribe to receive our market insights and webinar invites
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.21-0339
Our featured insights
Emergency Bank of England intervention tempers sterling’s nosedive, UK changes course on tax cuts
The Bank of England was forced to take emergency action last week after the pound depreciated to its lowest levels in over 35 years. In response, the government also changed its tune, reversing course on sweeping tax cuts across the U.K. In Europe, inflation readings reached all-time highs as the...
Rising rates have no brakes
Interest rate expectations increase as the Fed votes unanimously to hike the Fed funds rate by 0.75%, while the dollar continues to strengthen in line with recent market trends.
August inflation data spurs risk-off sentiment in markets
The latest U.S. CPI reading came in higher than economists expected last Tuesday, leading to sell-offs in equity markets and a resurgence of recessionary fears as the next FOMC meeting approaches.
Chatham's Q4 2022 outlook: Inflation, market volatility, and LIBOR transition
Watch Chatham's Managing Partner and Chair, Amol Dhargalkar, discuss key trends for the upcoming quarter like inflation, market volatility, and LIBOR transition.
ECB sets record rate hike
A slow economic week was highlighted by the ECB hiking interest rates by 0.75% in response to high inflation and rising energy costs. Jerome Powell reiterated the Fed’s commitment to lower inflation, while WTI and Brent prices fell for the second straight week.
Oil falls amid Russian oil price cap discussions
Interest rate expectations continue to increase along with U.S. dollar strength, while oil falls as the West decides to impose a price cap on Russian oil.
FOMC will continue to raise the Fed Funds rate “until the job is done”
At his Jackson Hole speech, Federal Reserve Chair Powell indicated that the FOMC must continue to raise the Federal Funds rate and hold it at a restrictive level until it is confident inflation is under control. He specified that while the July CPI inflation reading was welcome news, it would not be enough on its own for the FOMC to change course on raising interest rates to an intentionally restrictive level.
Federal Reserve reiterates plans for rate hikes amid mixed economic data
Federal Reserve meeting minutes reiterated plans for continued rate hikes while inflation remains at higher levels. Home builder confidence dropped six points in August, falling for the eighth consecutive month, while the U.S. dollar had its best week since April 2020.