HOT AIR BALLOON FLIGHT

By Julia Horowitz • Thursday, January 6

Good morning. In today's newsletter: The outlook for global supply chains still looks tough. Plus, why tech stocks are plunging, and the case for bitcoin rallying to $100,000 in the next five years.

 

US stock futures were mixed, with the Nasdaq poised to drop at the open. Markets in Europe dipped in early trading, following most stocks in Asia.

 

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NEWS ALERT

What's next for supply chains after the holiday rush

Retailers can breathe a sigh of relief now that the Christmas holiday is over, capping months of laborious planning to keep shelves stocked over the busy shopping period. But it may not be much of a respite.

 

What's happening: A new index from the Federal Reserve Bank of New York that tracks pressure on global supply chains indicated a slight drop between October and November.

 

"The [index] seems to suggest that global supply chain pressures, while still historically high, have peaked and might start to moderate somewhat going forward," the New York Fed's researchers said this week.

 

But analysts looking ahead to 2022 aren't convinced conditions will meaningfully improve. They say the impact of the highly contagious Omicron variant hasn't been fully realized, especially as some countries in Asia try to suppress all coronavirus outbreaks.

Record infections are triggering shortfalls of workers at ports and other transit hubs, while "zero Covid" policies are affecting manufacturers that have been desperate to keep production on track following a surge in demand for goods.

 

"Already we're seeing labor shortages right across the supply chain,"

Martin Dixon, director of research products at the consultancy Drewry, told me.

 

Chipmakers Samsung and Micron have had to adjust operations in the Chinese city of Xi'an, an industrial center that has been under strict lockdown since Dec. 23.

 

Judah Levine, head researcher at Freightos Group, told me that shipping rates for 40-foot containers from Asia to North America's West Coast fell by about 25% in November as "peak season" ended and "have stayed about level since then."

 

They're starting to rise again in advance of the Lunar New Year holiday in February, as consuming countries like the United States stock up on items before factories close in China. 

 

This just in: The cost of sending a 40-foot container from Shanghai to Los Angeles climbed 3% this week to $10,221, according to data that Drewry provided to CNN Business.

 

Levine doesn't think rates will return to peak season levels. However, he does think they'll stay high "as long as demand stays strong and ports continue to struggle with congestion."

 

"Those [factors] will only subside once there is a decrease in consumer spending on goods, which, especially with the current Omicron surge, does not look imminent," he said. Retailers are also working hard to rebuild depleted inventories, leading to an increase in orders.

 

A true "back to normal" will happen slowly, likely over the course of 2023, Levine said.

 

Bottom line: A slight moderation in costs from last fall won't make life much easier for companies across the supply chain. Furniture giant Ikea said last week that it would raise prices at its stores by an average of 9% in 2022 to help offset higher costs, including for transportation.

 

Some carmakers have also indicated that they do not expect to be able to ramp up production in the first half of this year due to ongoing shortages of computer chips.

 

"Chip scarcity will also accompany us in 2022, particularly in the first half," Markus Schaefer, the chief technology officer of Mercedes-Benz maker Daimler, recently told journalists. "We do not expect significant production capacity increases in the first half of the year."

VOICES

America is calling out sick

"I can't remember the last time I made the decision to close on a weekend."

 

RACHEL WYMAN, BREAD SHOP OWNER

 

Read more from CNN Business.

MARKET FLASH

Tech stocks get slammed as interest rate hikes loom

Technology stocks took a beating on Wednesday and are poised for deeper losses Thursday as investors assess the Federal Reserve's plans to hike interest rates for the first time since the Covid-19 pandemic hit.

 

The latest: The Nasdaq Composite plunged 3.3% during yesterday's session, the tech-heavy index's worst one-day performance since February 2021. Premarket trading indicates that the rout isn't over yet.

 

Wall Street was already dumping tech stocks following a jump in US government bond yields.

 

Yields have shot up in anticipation of interest rates increasing from near-zero as the Fed moves to rein in inflation. That could hurt future earnings for high-growth companies, which start to look like less attractive investments.

 

But expectations for imminent Fed action were supercharged on Wednesday when the minutes from its December meeting were released.

 

They showed that the central bank could hike interest rates faster than investors had anticipated. Some policymakers also want to step on the brakes by shrinking the Fed's balance sheet soon after rates begin to move higher.

 

"The meeting minutes further confirm the Fed's recent hawkish shift and its desires to start to remove monetary accommodation this year," said Lawrence Gillum, a fixed income strategist at LPL Financial. "While most of the information was known, that 'some' members wanted to start to reduce the Fed's $8.5 trillion balance sheet soon after the first rate hike is likely going to be further scrutinized in upcoming meetings."

 

Watch this space: The Fed under Chair Jerome Powell has been very careful to telegraph its next steps to markets. But the capacity for a surprise is higher this year as policymakers assess unwieldy inflation and continue the delicate process of unwinding unprecedented levels of support for the economy.

UP NEXT

Bed Bath & Beyond, Constellation Brands and Walgreens report results before US markets open.

Also today →
▸ Initial US jobless claims for last week arrive at 8:30 a.m. ET.

▸ The ISM Non-Manufacturing Index, which tracks the US services sector, posts at 10 a.m. ET.

 

Coming tomorrow: The US jobs report for December will be in the spotlight. Economists polled by Refinitiv expect to learn that 400,000 jobs were added.

WHAT WE'RE READING AND WATCHING

▸ This key jobs report just dwarfed expectations (CNN Business)
▸ US becomes the top exporter of liquified natural gas (CNN Business)
▸ Venture capitalists distances themselves from Theranos (WSJ)
▸ Sony is gearing up to make an electric car (CNN Business)

▸ Biden could name new Fed officials as soon as this week (Reuters)
▸ Amazon's Stellantis deal slams Rivian's stock (Bloomberg)

FINAL WORD

This bank thinks bitcoin could hit $100,000

The price of bitcoin has pulled back lately. On Thursday, it was trading below $43,000, near its lowest level in months. 

 

But Goldman Sachs thinks it's heading way higher — if investors are willing to be patient.

 

The investment bank said this week that the world's most valuable cryptocurrency could more than double to above $100,000 per coin within the next five years.

 

"We think that bitcoin's market share will most likely rise over time as a byproduct of broader adoption of digital assets," strategist Zach Pandl said in a report.

 

Pandl argues that bitcoin will increasingly steal market share from gold, which has stalled at around $1,800 per ounce. The metal is seen as an effective hedge against inflation and drops in other parts of the market.

 

He said bitcoin currently makes up about 20% of the market for assets seen as stores of value. Pandl thinks bitcoin could see its share climb to 50%, pushing its price 17% to 18% higher annually in the process.

 

That said: Bitcoin proponents love to discuss the potential for the cryptocurrency to act as "digital gold." But for now, its volatility and strong correlation with gyrations in the stock market make that a tough sell. The success of bitcoin, at least on this front, will be tied to whether its swings can become smaller, and whether trading can decouple from other risky investments.