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Today in the Market (2/16/2022)

Good Evening. Here is everything you need to know about today’s recap on the in’s and out’s of the major market and economic events.

After the Federal Reserve’s latest meeting minutes provided greater clarity on the central bank’s views on combating inflationary concerns, stocks pushed into positive territory Wednesday afternoon. Investors were particularly interested in the Commerce Department’s latest retail sales report, which indicated a stronger-than-expected increase in consumer spending at the start of the year.

The Dow Jones closed 0.16% lower, while the S&P 500 stayed neutral at a 0.09% gain. The Nasdaq Composite also dropped by 0.11%.

AGRICULTURE

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Avocado imports from Mexico, which supplies 80% of US avocados, were halted “until further notice” the day before the Super Bowl. The announcement came as avocado prices hit fresh highs, pushed up by broader supply chain challenges such as staff shortages.

Why are imports being halted? One of the US Agriculture Department’s safety inspectors in Mexico was threatened over the phone, according to the agency. Though neither the Mexican nor the US governments have said who issued the warning, a source informed the Washington Post that the inspector had detected an unlawful avocado shipment.

Details are scarce, but we do know that the fruit (yes, it’s a fruit) has grown in value to the point where Mexican cartels, who have diversified their financial flows beyond drugs, are fighting farmers over it.

  • Cartels have been stealing truckloads of avocados, establishing their own producing operations, and charging farmers per-hectare fees to “guard” their crops for several years, with deadly consequences for those who refuse.
  • Farmers have established militias to fight back, and the death toll in Michoacán (the only Mexican state allowed to export avocados by the US) has skyrocketed as a result of the fighting.

Will we run out of avocados? That is the big question.

A prohibition on avocados from the United States’ largest supplier could have a significant impact on your ability to “add guac.” Here are some predictions:

  • Chipotle’s CFO stated that the company’s restaurants still have “many weeks” of avocados.
  • Mission Produce, the United States’ largest distributor, is hunting for the fruit in other nations, but JPMorgan analysts say there isn’t enough global supply to go around.
  • Eco Farms, a supplier of avocados, warned it may have to boost prices by up to 25%.

However, the impact will be determined by how long the ban lasts: analysts say a ban of a few weeks will raise costs and have a significant impact on availability, while farmers say a ban of a few months will severely harm Michoacán’s economy.

FEDERAL RESERVE

The minutes of the Federal Reserve’s January meeting were released Wednesday afternoon, providing yet another glimpse into central bank officials’ views on how to combat inflation through monetary policy instruments.

Given the present economic environment and high inflation, the Fed reaffirmed in the minutes that it was prepared to go through a faster balance sheet runoff than it had before.

“While participants agreed that details on the timing and pace of balance sheet runoff would be determined at upcoming meetings, participants generally noted that current economic and financial conditions would likely warrant a faster pace of balance sheet runoff than during the period of balance sheet reduction from 2017 to 2019,” according to the minutes. “Participants observed that, in light of the current high level of the Federal Reserve’s securities holdings, a significant reduction in the size of the balance sheet would likely be appropriate.”

The minutes also stated that the balance sheet runoff process would commence in the third quarter of this year, according to the median respondent to the Open Market Desk’s surveys of principal dealers and market participants. That’s a year and a half earlier than what respondents predicted in December.

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