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Which countries have the highest levels of food inflation globally? (Scroll to the bottom to find the answer!)

IN THE NEWS

💰 Hedge Fund Bets Could Spark Turmoil In U.S. Treasuries

Photo by Jorge Salvador on Unsplash

In its quarterly report Monday, the Bank of International Settlements (BIS) — an association of 63 central banks worldwide — expressed concern about the alarming growth of the so-called basis trade, in which hedge funds try to make a profit from small variations in the prices of Treasury bonds and their futures market substitutes.

• It’s the most recent warning sign regulatory organizations have issued regarding hedge funds and the bond market.
• Although it’s all extremely murky, the $25 trillion U.S. Treasury market is a benchmark for interest rates on U.S. government debt, with almost $750 billion worth of Treasury bonds changing hands daily in August.

How it works: Basis trades, in this case, leverage the price gap between a short (bearish) position on Treasury futures and a long (bullish) position on Treasury cash with lots of borrowed money.

• When it works, hedge funds make enormous profits while putting up very little of their own money, thanks to significant leverage.
• But more considerable market corrections or movements that work against heavily leveraged futures bets may accelerate market selloffs.

Why it matters:

Sound familiar? This was a popular trade in the pandemic’s early stages: In early 2020, hedge funds amassed sizable basis trade positions, some of which were leveraged up to 50 times their bets, sources told Bloomberg.

That’s not a typo; we don’t suggest trying that at home.

• However, hedge funds executing basis bets were wiped out when the pandemic caused extreme market volatility.
• The resulting volatility is at least partially to blame for persuading the Federal Reserve to fire off $5 trillion to calm the markets.

Added BIS in its report this week: “The current build-up of leveraged short positions in the U.S. Treasury futures is a financial vulnerability worth monitoring because of the margin spirals it could potentially trigger.”

The concerns mirror a recent Federal Reserve paper, highlighting the same warning signs.

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🛒 Walmart, Costco to Work on Plan to Curb Food Inflation

Photo by Tara Clark on Unsplash

Finally, consumers could get some relief at the grocery store, at least for Canadians.

The Industry Minister of Canada said leaders from five major grocery stores, including Walmart and Costco, have committed to collaborating with the Canadian government on a strategy to stabilize food prices.

• Some hope the model could be applied elsewhere, including the U.S., as millions of Americans struggle to cover the soaring cost of food.
• Globally, food prices have dramatically outpaced inflation, increasing the cost of living for the most financially vulnerable and sinking some into poverty.

How it’s happening: Last week, Prime Minister Justin Trudeau’s administration said they’d require supermarket chains to submit a strategy on stabilizing food prices or face undefined tax actions.

• The country’s industry minister, Francois-Philippe Champagne, described his Monday meeting with high-level executives from Walmart, Loblaw, Metro, Empire, and Costco as “constructive,” focusing on ways to moderate escalating prices.

Why it matters:

Grocery affordability, thanks to surging food (and, to some extent, housing) costs, has become a worldwide challenge since the pandemic.

Food inflation surge: From 2022 to January 2023, Canada and the U.S. experienced a steep rise in food inflation, peaking at roughly 10% year-over-year. For some items, the price increases were much higher.

Shoppers have leveled accusations of “greedflation” against large retail chains as inflation-adjusted prices reach levels not seen in decades. One concern is that companies are exploiting inflation to hike prices excessively — beyond increases in their own input costs.

• Critics say corporate pricing strategies to increase profit margins have materially contributed to the jump in inflation measures like the Consumer Price Index, echoing the public’s frustration.

The Retail Council of Canada, an organization representing grocery stores, attributes the price hike to elevated costs from food manufacturers and producers, suggesting higher check-out prices are driven primarily by supply chain difficulties, Russia’s conflict in Ukraine, rising fuel prices, and climate-related events.

• On that point, a spokesperson for the council suggested regulators must consider the entire supply chain, not just grocery stories.
• Adding, “This is something that we have called for consistently, given that 70% to 80% of grocery checkout prices arise before the food even gets to Canada’s grocers,” she added.

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🏈 The XFL and USFL Enter Merger Talks

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The NFL dominates American sports and television. Yet, despite football’s popularity, pro-football alternatives to the NFL have failed numerous times.

That reality casts a shadow over the emergence of two alternative leagues, the XFL and USFL, especially as they directly and indirectly compete with each other.

• The question, then, that many fans have wondered is, ‘Why not join forces?’

Joining sides: As Axios reports, it might finally be happening. The deal would reportedly be structured as a merger of equals, requiring regulatory approval, with an aim to close the deal before the 2024 seasons.

• Both leagues have eight teams and play a 10-week regular season with two playoff rounds leading to a championship game.
• Game broadcasts for the combined league would likely be split between Fox and Disney, but a complete announcement is expected later this week.

The NFL is king: Of the top 100 telecasts last year in the U.S., 94 were sports-related, with 82 coming from the NFL alone. The other top-rated TV events included five college football games, the Winter Olympics, the Kentucky Derby, and the State of the Union address.

• The NFL first claimed its throne in 1972, according to Gallup polls, usurping baseball as Americans’ favorite sport, and nothing has ever rivaled it since.

Why it matters:

A tale of two leagues: The USFL, which Fox owns, is apparently profitable and has convinced Fox execs to invest more in spring football. The XFL, partially owned by Dwayne “The Rock” Johnson, isn’t profitable — the league lost some $60 million in its first season.

• Viewership for the NFL alternatives has been uninspiring, averaging around 600,000 viewers per game.
• Fans of spring football hope that, under the same banner, there’s a stronger business case for the two leagues.

Read more

See you next time!

That’s it for today on We Study Markets!

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