Five Things You Need to Know to Start Your Day - Bloomberg

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Supply-chain problems continue, inflation headache, and a big day for Bitcoin. 

Guidance 

Investors trying to assess the outlook for global growth have a lot to chew over from company earnings where supply-chain difficulties are a big theme. Yesterday’s U.S. factory production data for September showed a surprise drop as manufacturers struggled to source materials. The continued shortage of semiconductor chips hit vehicle output particularly hard, with the sector showing a 7.2% fall. Meanwhile, efforts to clear backlogs at ports are so far proving inadequate. 

Inflation 

Adding to concerns is the continued rise of energy prices, with oil hitting another multi-year high this morning. The debate continues about just how transitory the rise in consumer prices will prove, with Federal Reserve economists projecting  2% inflation in 2022. For central banks, the problem is their usual tools to fight higher prices can do little to solve a supply crunch. This means that those that do hike, or have signaled such, will see government bond prices while inflation expectations remain elevated. 

Crypto

Speaking of debt, Fitch Ratings said that the rapid growth of stablecoins like Tether could potentially rival traditional money market funds for influence in the commercial paper market. Should rapid growth of stablecoins continue, and some 20% of reserves of the tokens go into short-term securities, then they will overtake the holdings of money-market funds within two years. Crypto investors, meanwhile, will be closely watching the launch of the first Bitcoin futures exchange-traded funds. The largest cryptocurrency is trading above $62,000 this morning, close to all-time highs. 

Markets rise

Global equity remain focused on earnings, with solid results helping counter concerns about rising inflation. Overnight the MSCI Asia Pacific Index added 0.9% while Japan’s Topix index closed 0.4% higher. In Europe the Stoxx 600 Index had gained 0.2% by 5:50 a.m. Eastern Time with miners outperforming as base metals headed for record highs. S&P 500 futures pointed to plenty of green at the open, the 10-year Treasury yield was at 1.591% and gold rose. 

Coming up...

U.S. September housing starts data is at 8:30 a.m. There are four Fed policy makers scheduled to speak today. Corporate news, however, dominates today’s schedule with Netflix Inc., Bank of New York Mellon Corp., Johnson & Johnson, Halliburton Co., Procter & Gamble Co., United Airlines Holdings Inc. and Philip Morris International Inc. among the many companies reporting results. Google holds a lunch event for its Pixel 6 phone. The chief executive officers of Pfizer Inc. and Siemens USA speak at the Bloomberg Policy Blueprint conference. 

What we've been reading

Here's what caught our eye over the last 24 hours.

And finally, here’s what Joe’s interested in this morning

You can't debase the U.S. dollar. People talk about it all the time -- about how the Fed or fiscal authorities are debasing the currency -- but it's impossible. To debase something implies injecting some impurity into it. Like those charts that goldbugs post about the declining fineness of Roman imperial silver coins.

Source: Wikipedia 

But of course, fiat currency always comes out of thin air. That's true whether it's the government spending money or a private bank creating a loan. There's not some thing or substance backing it. So to use any kind of fineness metaphor is automatically misleading.

You might think that this is some semantic quibble, and that the debasement metaphor can be salvaged if we think of currency more like coffee. If you drink one coffee every once in awhile, it might have some energizing effect on you. If you drink it every day, you might need more and more each day to get the same oomph. So you might say that dollars (like coffee) lose their oomph with more being consumed.

But even this metaphor fails, because increasing dollars doesn't necessarily lead to a reduction in purchasing power. Imagine a deficit-financed investment program that somehow significantly expanded capacity at the Port of Los Angeles or on our trucking lines. You could simultaneously see a big increase in public spending and an increase in purchasing power (or decrease of inflation) if the investment were successful.

That's not to say there can't be inflation. We're experiencing that right now. But any attempt to measure the dollar's value based on some kind of quantity/fineness framework is going to fail.

Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart 

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