My investing muse - UAW strike, inflation, interest rate & Ukraine

My investing muse - UAW strike, inflation, interest rate & Ukraine

Inflation and interest rate

Most eyes will be fixed on the Fed with their coming interest rate decision. Most are expecting the hike rate to pause with a probable one more rate hike by the end of the year. The latest CPI figure may have matched expectations but there was an increase of 0.6% Month on Month (MoM). This implies that things are still getting more expensive over time.

With OPEC+ reducing their daily oil production by 1.3 million barrels per day (bpd), the oil price has crossed the USD$90 mark recently. This should be sustained till the end of the year.

Strikes

UAW strike has taken place with about 13,000 union workers involved. The strike is affecting the automakers GM, Ford and Stellantis. While the demands are largely inflationary, the income proportion between the workers and the CEO is widening over time. With record profits, it is natural that the union expect to benefit more in comparison to the CEO’s compensation. Yet, for every 1 job affected, there could be 6 other jobs affected. These affected jobs involve the partners & suppliers of the automakers.

Let us not forget that over 60% of Americans live from paycheck to paycheck. Thus, there could be an accumulation of debt over this time. As of Sunday, we understand that talks with the UAW have resumed. A timely resolution is needed.

Taking a step back, we can expect that there be a resolution. However, how much disruption it would cause would not be known till later. We are expecting there to be an increase in the labour costs for the automakers. This would affect their costing and we can expect some of the costs to be passed onto the consumers. Will the products be too expensive for the buyers leading to some loss of market shares? This will be inflationary in outcome. Will this send some of the automakers into bankruptcy? It is too early to tell. How will this affect the sticky inflation?

Ukraine

Ukraine is not a dominant topic nowadays with extreme weather and natural disasters dominating the news. Be it the floods that hit Hong Kong & China, the earthquakes in Morocco and the Maui fire that destroyed many lives, the weather continues to impact different geographies. How will this affect the agriculture? How would the insurance cope with all these? How fast can the rebuild take? How much more finances are needed to restore the affected communities?

With all these needful costs, some have expressed their concerns when their countries gave priority to a distant war over their own citizens. This was not a pro-Putin movement but rather, one to take care of their own citizens (first) in the face of these domestic challenges. Ukraine continues to demand the resources required to fight in this conflict.

Some have pointed out that the dragging out of this war would leave Ukraine destroyed. Concurrently, more resources and funding would be necessary to rebuild this war-torn country.

Conclusion

It is not hard to predict inflationary outcomes from the strikes. The coming week could be a volatile one. While the market has expectations towards the interest rate, it is not certain that the Fed would follow this narrative. Let us continue to exercise prudence. Keep well all.

@TigerStars

$S&P 500(.SPX)$

$General Motors(GM)$

$Ford(F)$