The Bureau of Labor Statistics released the Consumer Price Index for October 2021, showing an increase of 0.9% on a seasonally adjusted basis. The number is more than double the rise of 0.4% for September. Over the past 12 months, the index increased 6.2% before seasonal adjustment.
While a jump in prices is reasonable once the economy recovers from the pandemic lockdown, the persistently high inflation rates this year are beginning to impact consumers, the Fed, and investors.
Consumers are paying far more at the pump than a year ago. At home, heating gas and oil are at seven-year highs. Although wages have also been rising, the gains are not keeping up with the rising consumer prices. Fed Chairman Powell and Secretary of the Treasury Yellen reiterate the pandemic-induced inflation is transitory. Nonetheless, rising prices for food, energy, household items continue to hurt consumers. For example, meat prices have jumped 13 percent over the past year, gasoline is up an astonishing 42 percent, and rent is up more than 3 percent.
The central bank has stated that they will taper their asset purchases over the next few months. However, persistent, and sustained inflation may force the Fed to accelerate the pace of the tapering. If the labor market is not running at capacity when the Fed tightens, this may lead to a policy mistake. The recent Fed survey suggests consumer expectations for inflation are at historic highs.
Some believe rising commodity prices are a harbinger of rising inflation. Commodities are breaking out all over. A review of the commodities market shows the bulls are in control. As prices trend higher, more traders and commodity investors are jumping into the commodities market, fueling the advance. Listed below are commodity ETFs to monitor.
The Invesco DB Agricultural Fund (DBA) is a popular Agricultural ETF that consists of grains (37%), livestock (24%), and softs (cocoa, coffee, and sugar – 35%), and grains (24%). The recent breakout above 19.39-19.48 (Jul and Aug 2021 highs) is worrisome as it warns of the next rally toward 21-21.5 (near-term), and above this to 22.25-22.75 (medium-term), and then 24-25 (intermediate-term). DBA has already reversed the primary 2008 downtrend via the Apr 2021 breakout of its downtrend above 18.5. Initial support rises to the November breakout (19.39-19.48), and below this to 18.92-19.12 (Oct/Nov 2021 lows and 50-day ma), and 18-18.5 (Sep 2021 lows and 200-day ma).
The United States Oil Fund (USO) tracks one of the world’s most famous commodities, the West Texas Intermediate (WTI) light, sweet crude oil. After declining 84.16% from Jan 2020 high (106.56) to Apr 2020 low (17.88), USO is nearing its 50% retracement (61.72). Also, the top of its 2021 uptrend channel is trending near 61. A breakout here suggests the next USO rally to 72.30 (61.8% retracement). Initial support rises to 54.5 (50-day ma and 11/4/21 low) and below this to 51-52.5 (bottom of the 2021 uptrend channel and late-Sep 2021 breakout), and 47.5 (200-day ma).
The Invesco DB Base Metals Fund (DBB) tracks the most used base metals, including aluminum, zinc, and copper. A cup-and-handle breakout developed in late-Feb 2021 on a convincing move above 19.29. The breakout suggests 7.38 points or a DBB target at 26.67. DBB traded to a recent high at 24.00 (10/15/21) before encountering an overbought condition. The recent pullback from the Feb 2021 highs is nearing 19.29 or the prior breakout. Also, the rising 200-day ma is converging near 20.22, providing critical support. The RSI trading is currently at 42.35 or near oversold levels, opening the door for the next DBB rally.
SPDR Gold Shares (GLD) continues to be one of the largest Gold ETFs in the world. It is the first US-traded gold ETF and the first US-listed ETF backed by a physical asset (Gold). The sharp 75.09% from Aug 2018 to Aug 2020 rally led to an overbought condition as GLD peaked at 194.45 (8/6/21). Since the peak, GLD has consolidated within a trading range between 157-161 and 175-179. The recent breakout above the Aug 2021 downtrend at 171 signals the start of recovery toward 175-176 (50% retracement from Aug 2020-Mar 2021 decline) and 179-180 (May 2021 high and 61.8% retracement).