The current supply squeeze is one of the worst seen ever. The disconnect between demand fundamentals and food- and energy prices is simply eye-catching. Watch the downside, but not yet.
Food prices also surged in the most violent way that we have seen in modern history on the back of the Russian invasion of Ukraine and we know from anecdotal evidence that for example German retailers have raised prices on a pamphlet of food-related products through April as well.
This is going to get ugly for Euro zone inflation numbers this quarter, but it also comes with a clear cost on the demand side. The latter is what most analysts currently tend to forget in my humble opinion.
https://cdn.substack.com/image/fetch/w_1456,c_limit,f_webp,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F6bf77395-8830-4dd6-b180-84b062fec691_702x402.png
This brings me to the most important chart in global macro right now. The Chinese domestic demand is falling off a cliff due to the super lockdowns in Shanghai and other regions. The risk is sadly still tilted towards even more draconian lockdowns in other Chinese regions and commodity prices (especially those linked to industrials) rarely remain this high, when the Chinese economy is not performing.
This is the biggest disconnect between the supply and the demand side that I have seen in recent decades, and it will hence take even bigger supply constraints on commodities to prolong the current price rally. The demand side is simply not pushing the needle anymore.
https://andreassteno.substack.com/p/stenos-signals-8-outright-deflation?s=r