Business & Investment

As long as consumer demand continues, get used to all the delays from cars to computer chips, RBC says.

Insatiable demand from US consumers towards the third year of the COVID-19 pandemic will “never” eliminate supply chain bottlenecks without major infrastructure improvements at the two busiest ports in the United States. It leads to the scenario. Analysis by RBC Capital Markets.

In a report released Thursday, Michael Tran, head of RBC’s digital intelligence strategy, and others said, “The supply chain from Asia to California is built to handle current consumer product demand. I haven’t. ” It was the heart of the problem. “

Source: Bureau of Economic Analysis,

“If demand for commodities continues to rise forever, the Port of Los Angeles and Long Beach will not be able to completely clear the logistics hurdles needed to unravel the supply chain,” he said. “The supply chain does not normalize and is important. Without a good infrastructure investment, “they write. .. The Port of Los Angeles is the first container port in the United States, followed by the second busiest Port of Long Beach. As of November, it accounts for almost 40% of the country’s imports.

The survey results show that the highest inflation rate in the United States Almost 40 years If a case of COVID-19 falls, it will run much longer and may not be alleviated. By focusing on consumer demand, the RBC raises the notion of a more permanent dilemma that has not yet been taken into account in the thinking of financial market and Federal Reserve policy makers. It will return to 2% by 2024, in the long run.

Treasury yields on Thursday remained unchanged or slightly lower, 10-year yields

Even after Federal Reserve Board Lael Brainard testified that controlling inflation was the central bank’s most important task for the foreseeable future, it was 1.7%.

read: Inflation is “too high,” says Lael Brainard. The Fed works to lower it.

Fixture traders are pricing a gradual decline in the annual headline consumer price index this year. It was 7.2% in January, about 7% until March, and will drop to 3.2% at the end of the year. in the meantime, 5 years When Decade Breakeven, reflecting the inflation outlook, remained around 2.8% and 2.5%, respectively, as of Wednesday.

David Petrosinelli, Senior Trader at Inspere X in New York, said: If the Federal Reserve cannot stop inflation with three rate hikes by June, policymakers will raise rates by a series of 50 basis points starting in the third quarter, starting to push the federal funds rate target above 3%. Must be done. He said on the phone that it would be from 0.75% to 1% at that time. The target is currently between zero and 0.25%.

But first, traders began to aggressively sell government bonds during the summer, pushing short-term and long-term yields by more than 100 basis points in the short term, Petrosinelli said on the phone. Given that rising wages are another “troublesome” factor behind high inflation, this is an “easy” scenario, he said, in addition to consumer demand.

The roaring international supply chain has long awaited everything from furniture and appliances to new and used cars, groceries and semiconductor chips. Some of the logistics challenges are summarized in a report by RBC that uses geospatial intelligence to track activity at 22 of the world’s largest ports.

Time required at the port of Long Beach, Los Angeles

7.5 days

The time the chassis used by truck drivers to transport containers is held at the port terminal

Up to 9 days

Current US truck driver shortage

85,000 operators

read: How Equity Market Investors Can Understand Supply Chain Disturbances

According to RBC calculations, to “clear congestion” and “return the PCE price gauge to the long-term trendline,” US consumer spending needs to be reduced by 15% in 10 months. However, spending on consumer goods is about 20% higher than before the pandemic, according to the report.

“Given the strength of the average US household balance sheet, it’s hard to see a short-term recovery unless consumers shift significantly and stop commodity spending on services,” said RBC Tran. Other analysts have written.

To make matters worse is China’s zero-tolerance policy on COVID-19. It led to a partial and intermittent blockade of Ningbo’s industrial hub. Last week, 200 pilots were left in quarantine after two pilots tested positive in the Yangtze River area. According to the RBC, 20 regional businesses were shut down during the holidays, affecting the production of batteries, textiles, medicines and personal protective equipment.

RBC’s view of the endless product backlog outlook is not yet consensus, but others such as Siemens Energy

CEO Christian Bruch has expressed similar concerns. Supply chain issues Probably stay here.

As long as consumer demand continues, get used to all the delays from cars to computer chips, RBC says. As long as consumer demand continues, get used to all the delays from cars to computer chips, RBC says.

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