GET READY FOR BLUNT INTEREST RATE HIKES IN OCTOBER & NEXT QUARTER

Today you are happy that Industrial Inflation and retail inflation might be coming down, particularly for India but it may not be in the coming months or next quarter. The reason will be more global rather than Indian-specific. In other words, for India, it might be an opportunity as the global market becomes buyers of India.  We are already listening to strong strictures on the rice and wheat export ban and very soon the list will add more items in the coming quarter to control prices at home.   Inflation might change the rank of the world order and GDP growth just like India became 5th from 6th position.

Many industries will not find it feasible to produce many commodities and this might lead to falling in supply and a rise in export.  You will witness food shortages this winter creating problems for the retail side. You cannot control Inflation by raising rates now.  This winter will make inflation break all historical levels. Higher interest rates will bring a slowdown for the world causing opportunity for a few countries and a halt for many economies. We will find significant interest rate hikes, current valuation, and a blind mad race to bring down inflation by raising rates.

As supply chain problems rise, cost of living prices grows significantly. The start of a new world order

Natural gas is an important energy item for the production of many raw materials linked with various industries. Steel prices and other metal prices are going to go up the roof in the coming months as production gets halted and reduced due to rising energy costs.  Demand has also its cards to play but it's more due to a reduction in production due to high energy costs making either the product to be costly or beyond production. The heating cost of greenhouse-based production leads to stoppage due to higher gas prices.

Hot rolled coil prices in Northern Europe declined further the past week. ArcelorMittal announced plans to indefinitely shut down one of the blast furnaces at its Bremen works. The dearth of physical metal and lack of investment in new mining projects will seriously impact the raw material supply. On the other hand, the dollar and Euro relation have already hit a parity it has recently hit levels against the pound not seen since the 1980s. This caused investors to turn away from Europe and the UK due to the same recession fears impacting metal prices. This journey will continue. November deliveries of the hot rolled coil will see a 13% price hike, while prices for other products (including commodity-grade long steel) will rise by $150 per ton.  Their many crops that require intensive heating in colder climates, such as cucumbers, tomatoes, and lettuce, are the most directly affected.

Around 75-80 percent of UK salad growers will not plant next year  because it doesn’t make any economic sense. It’s fair to say the salad sector has been abandoned. Natural gas which last year cost him 50p a therm now costs £3.75, and he has been quoted £5 a therm for the winter. Alfred Pedersen & Son, the largest tomato supplier in Sweden and Denmark, which operates 350,000 square meters of greenhouses has declared to shut down in winter.  Well, farmers are selling electricity which they brought for farming activities.  These actions are spreading like wildfire in other countries and among farmers.

Europe’s nonferrous metals trade body, Eurometaux recently informed that partially or fully shuttering down manufacturing of metal plants may endanger the long-term survival of Europe’s smelting industries such as aluminum, zinc, copper, ferrochrome, and, by extension, EAF steel.

On the other hand, food inflation will be going very high as Industrial NPK fertilizers (so named for their makeup of nitrogen, phosphorus, and potassium oxide), are heavily reliant on natural gas supplies which are very expensive. About 70 percent of the cost of fertilizer production is solely the price of natural gas, which is used in liberal amounts to make the ammonia phosphate slurries that turn into fertilizer. The stoppage of production due to high cost and also even if the production is at a higher cost is kept the agricultural output cost will be phenomenal. Many developing nations will face a significant risk of starvation and a higher cost of import of fertilizers.   Food inflation will go ups significantly in the coming as Commercial fertilizer plays an essential role in 40 to 60 percent of the world's food production.

Food production costs were already high due to higher transportation costs and labor shortages coming from the pandemic followed by extreme weather conditions due to climate change. In a recent study, it has been found that 9% of the population in New Jersey is food insecure, which means they struggle at times to get enough to eat, but experts believe the actual numbers are much higher.

Food inflation control mechanism by rising rates only creates a perfect recipe for devastation for the global economy. You need agricultural base funding so that crop production and farmers are well protected and the prices come down so as the retail food inflation.  But we know that this not going to happen and hence the global stock market will be facing more pains going ahead in the coming months and quarters. 

This winter we will see significant emergency interest rate hikes with an outlook by the Central Banks creating more pain. One needs to follow asset allocation and book profit currently from the portfolio and get into a liquid strategy. You will get investment opportunities in a staggered way since any government might come up with massive cash to save their crisis and markets might bounce back. Hence don't wait for dirt cheap valuations to buy at the lowest and sell at the highest.