Control Panel: Trends and threats…

**Supply Chain Woes Could Worsen as China Imposes New Covid Lockdowns**

**American manufacturers are worried that China’s zero-tolerance coronavirus policy could throw a wrench in the global conveyor belt for goods this year.**
**By Ana Swanson and Keith Bradsher, The New York Times, Jan. 16, 2022**


**So far, the effects of the lockdowns on Chinese factory production and deliveries have been limited. Four of China’s largest port cities -- Shanghai, Dalian, Tianjin and Shenzhen — have imposed narrowly targeted lockdowns to try to control small outbreaks of the Omicron variant. ...**

**If extensive lockdowns become more widespread in China, their effects on supply chains could be felt across the United States. Major new disruptions could depress consumer confidence and exacerbate inflation, which is already at a 40-year high...** [end quote]

The Chinese lockdowns haven’t seriously affected exports so far, but could in the future. The supply chain on the U.S. side is still delayed. Delivery times for products shipped from Chinese factories to the West Coast of the United States are as long as ever — stretching to a record high of 113 days in early January. West Coast ports could see further disruptions this year as they renegotiate a labor contract for more than 22,000 dockworkers that expires on July 1.

Supply chain constraints lead to increased inflation.…

**Omicron, Inflation Drive Down U.S. Growth Outlook**
**Forecasters also revise up expected inflation and number of Federal Reserve rate increases**
**By Harriet Torry and Anthony DeBarros, The Wall Street Journal, Jan. 16, 2022**

**Forecasters surveyed by The Wall Street Journal this month slashed their expectation for growth in the first quarter by more than a percentage point, to a 3% annual rate from their forecast of 4.2% in the October survey....**

**The current pandemic-related shortage of workers is expected to keep wages rising at an intense clip over the next few months, as employers offer higher pay packets to retain and hire staff. Economists expect average hourly earnings to be up 4.9% from a year earlier in June; they rose 4.7% in December...** [end quote]

The 69 forecasters predicted that inflation would taper to 3.1% by the end of 2022.

But that doesn’t take into account the stickiness of inflation from increasing wages. The forecasters also predicted at least 3 Federal Reserve rate increases in 2022.

Inflation is rising with no end in sight. Ditto the Sticky Price Consumer Price Index less Food and Energy.…

The Altanta Fed has significantly cut its GDP Now model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 to 5.0 percent on January 14, down from 6.8 percent on January 10.

The economy is at a tipping point. Will inflation become entrenched? Will the Fed’s predicted interest rate increases significantly impact the asset markets and/or push the economy into recession?

Dr. Vivek Murthy, the U.S. surgeon general, warned today that the Omicron surge of coronavirus cases had not yet peaked nationally, saying that the next few weeks would be very difficult in many parts of the country as hospitalizations and deaths rise. An average of more than 800,000 new cases a day were reported on Saturday. Many of these are workers so production is being impacted. Nearly 63 percent of the U.S. population is fully vaccinated, but only 38 percent of those have received a booster shot.…

As if this wasn’t enough, Russian President Vladimir Putin is threatening to invade Ukraine but aslo threatening the U.S.…

**Russia Issues Subtle Threats More Far-Reaching Than a Ukraine Invasion**

**If the West fails to meet its security demands, Moscow could take measures like placing nuclear missiles close to the U.S. coastline, Russian officials have hinted.**
**By Anton Troianovski and David E. Sanger, The New York Times, Jan. 16, 2022**


**“From the beginning of the year we will have in our arsenal a new sea-based missile, a hypersonic one,” Mr. Putin said, referring to a weapon that travels at more than five times the speed of sound and could likely evade existing missile defenses....**

**American officials believe that Mr. Putin could be drawn to cyberattacks — easy to deny, superbly tailored for disruption and amenable to being ramped up or down, depending on the political temperature....Department of Homeland Security has long warned that the Russians have already placed malware inside many American power grids...But much of corporate America remains far less protected....ransomware...** [end quote]

The Control Panel responded to these threats with a shrug. The Fear & Greed Index is neutral. The trade is neutral, neither risk-on nor risk-off.

The entire Treasury yield curve shifted upward, responding the the expectation of the Fed’s tapering of monetary stimulus and rising fed funds rate. Treasury real yields are still negative at all durations but a little less so.

The USD fell a little but it’s still within a rising channel. Oil and natgas prices are rising.

The broad stock indices are slowly rising but leveling off. The percent of S&P100 stocks above their 200 day MA is 74% and rising. The NASDAQ index has dropped since the Fed announced its planned interest increases in late November 2021. The NASD Bullish Percent has dropped to 40%.

The METAR for next week is cloudy with bright flashes on the edges of the radar returns. The short-term forecast isn’t dramatic but there are significant threats that could blow up in the next few weeks and months.



We are within roughly 8 weeks of the first FED rate hike.