moneyweek.com 8October 2021 MoneyWeek
Markets 7Eurozoneinflationhita 1 3-year
highinSeptember.Pricesinthe
blocroseby 3 .4%intheyearto
September.Surgingnatural-
gaspricesandsupply
disruptionsmeaninflation
lookspoisedtohit4%before
theendoftheyear.Likeother
centralbanks,theEuropean
CentralBank(ECB)argues
thatthesepricerisesare
transient,saysAndrew
KenninghamofCapital
Economics.Itexpectsfalling
energypricestobringinflation
backbelowthe 2 %target
nextyear.TheECBhasmade
clearthatitwillonlyraise
interestratesifitthinksthat
inflationwillstay“durably”
abovetargetforseveralyears
ahead.Thatgivesit“wiggle
room”toholdoffonraising
rates,evenifthisinflationary
spikeendsuplastingmuch
longerthanforecast.
TheECBhaslonghada
reputationforbeinghawkish.It
inheritedanold-schoolattitude
tosoundmoneyfromthe
GermanBundesbank,onwhich
itwasmodelled.In 2011 ,rising
commoditypricespromptedit
tohikeinterestrates,evenas
others(includingtheBankof
England)arguedthattheeffects
weretransient,saysFrancesco
CanepaforReuters.
TheECBnowrecognises
thatwas“apolicymistake
thatexacerbatedtheeurozone’s
debtcrisis”.Having“learned
thehardway”,policymakers
areinnohurrytoraiserates
thistime.Whilemanyother
centralbankslooksettohike
rates,theECBhasturned
fromaGermanhawkintoa
Europeandove.
Energypricescontinuetosoar.
Brentcrudeoilwastrading
above$8 2 abarrelthisweek,a
three-yearhigh,aftertheOpec+
groupofproducerssaiditwould
notaddadditionalproduction
inresponsetothepricespike.
USWTIfuturesareataseven-
yearhigh.OnTuesdayDutch
wholesalegaspriceswentabove
€1 00 permegawatthourfor
thefirsttime.Priceshavemore
thandoubledsincethestart
of September.
Therewasmuchtalkearlier
thisyearofacomingsupercycle:
aprolongedperiodofrising
commoditypricesowingto
structurallyhigherdemand.
Yetwhileenergymarkets
boom,othercommodities
havecomebackdownto
earth,saysWilliamWattson
MarketWatch.USlumber
futuresgained 600 %between
April 2020 andMay 2021 but
arenowdownby 40 %since
thestartoftheyear.Copper
rocketedtoanall-timehigh
inMaythisyear,buthasgone
nowhereinrecentmonths.Still,
inaggregate,commoditiesare
up:theS&PGSCIindexof 24
majorrawmaterialshasrisenby
40 %in 202 1.
“Mostelementsofthe
supercyclestoryremain
unchanged,”saysCMEGroup
onBenzinga.com.Therecovery
fromthepandemic,combined
withlavishfiscalandmonetary
stimulus,shouldcontinueto
powerpriceshigher.Yetthe
prospectofcominginterestrateWher eisthe supercycle?Europe’sdovish
centralbank
hikesand si gnsthatChina’s
appetite forraw materialsis
ebbing aresowingdoubt.“The
jury is still out.”Chaos,not abull market
This year’s pricemovemen ts
look less like asupercycle
than simple “chaos”, says
TheEconomist.Stop-start
lockdownsand geopol itical
tensions are“interacting
in unpredict able ways”.
Forexample,“iron ore has
cratered”onweakerChinese
steel demand.Yet coking coal,
whichisa lsousedinsteel
production,iss till “glowing
hot” because of alockdownin
Mongolia,amajorproducer.
Theenergytransitio nisakey
elemen toft he case for anew
supercycle.Plentyofc opper and
rare earthmetalswill be needed
to buildall thefuelcells and
greenpower gridsoft he futu re,Steven Spen cerofSpencer
Associatestells Lexology.com.
Butmore efficientuse of raw
materialscan bringdown
demand over time. Higher
prices also encourageusers to
switch to cheaperalternatives:
witness“theuse of aluminium
powercablesasasubstitutefor
copper whenthe priceofc opper
is toohigh”.
Moreefficientuse of
resources, combined with
newexploration,means that
commoditiesare asurprisingly
poorlong-terminvestment.
Deutsche Bank’sLong-Term
AssetReturnStudynotes
that commoditieshaveseen
negative real returns of -0.8%
peryearoverthe last 100years.
Commoditiesshouldprovide
protection if inflation spikes
(see page20).But thinktwice
before buyingthemfor your
grandchildren’strust fund.Viewpoint
“TheTurkishpresident,RecepTayyip
Erdogan,hasfiredthreecentral-bank
governorsfor not complyingwith his
eccentri cviewthathigh interest rates
arethe causeofi nflation, ratherthan a
cure.SahapKavcioglu,Turk ey’s most
recent centralbankgovernor, [has
yiel ded] to Erdogan’s demands by
cuttinginterestrates [from19% to
18%]... theTurkish economy[has] low
internati onalreserves... an dahigh
amount of dollar-denominated
corporate debt[but hassofar]managed
to avoidafull-fledged currencycrisis
[thanks to]internationalinvestors
[being ]desperate foryield...[thereisa
now] ashiftto tighteningworld
monetarypolicyconditions... Domestic
andforeign investorswilllikely head for
the door... [That] is likely to send the
currency to yetlower levels, whichwill
[fuel] inflation...Erdogan couldpay a
heavyprice in the2023election.”DesmondLachman,The HillAfricancurrenciesarehavinga
goodyear,saysAdelaide
Changoleon Bloomberg. The
Seychelles rupeehasgained
53%againstthe US dollar since
the startofJ anuary. The“palm-
fringedarchipelago”, whichlies
offAfrica’seastcoast,has been
experiencing atourism boom
followingasuccessful
vaccination progra mme.
Visitors from Asia havemore
than doubled, helpingGDP
reboundfroma13.5% fall last
year.Ofthe topten currency
gainers so fa rthisyear, five are
African. Severalhavebeen
boostedbythe commodity
boom.Zambia is the continent’s
second-biggest copper
producer .The Ugandanshilling
hasalsogainedthanks to higher
earn ings from thecountry’s
coffee exports.nWhytheSeychelles rupeeis rocketing53 %26%17%7%7%7%Seychelles rupeeZambian kwachaMozambique
newmeticalArmenian dramAngolan kwachaUkranian hryvniaAfrican countries dominate list of
best-performing currencies globally%gain against US dollar in 2021©GettyImagesSo
urce:B
loombergPlentyofcopperwillbeneededtobuildgreenpowergrids