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Charles Schwab: El Niño Could Bring Storms to the Markets

Extreme weather not only represent risks to the environment and people, but also poses "surprise" costs and economic unpredictability. That is, with the increase in its intensity and frequency, extreme weather means serious consequences for industry, agriculture, etc.


A recent report by the investment firm Charles Schwab elaborates on these consequences. And correlates the market movement with the last time we had the El Niño Southern Oscillation, ENSO explained in our post yesterday. This is the graphic in the image below, for the period Jan-2015 to Jan-2018.


"Weather rarely has a material impact on overall markets", is how the report starts. Then the author adds "a high probability for an El Niño event in the second half of 2023 brings concerns of extreme weather, persistent inflation, supply chain disruptions, and market volatility".


Besides what we have been posting about El Niño and extreme weather , the report adds:

  • In Germany, the Rhine at Kalb fell below 100 centimeters, making the river potentially impassable for most barges carrying industrial products and coal

  • In France, the Rhone has been too warm to cool nuclear reactors for Electricite de France, leading to shutdowns and lower output

  • In Eastern Europe, the Danube at Budapest is down to 135 centimeters, threatening a key grain transport route

  • Commodities freight transportation costs may rise if modals and frequency must be shifted

  • Excessive heat warning in populated areas in United States

  • Hydropower generation could be also curtailed, adding to the strain on power supplies, and putting upward pressure on gas and coal prices

  • Wildfires in Canada already affecting more than 100 million people

  • Mining disrupted by heavy rainfall in Chile, a key exporter of copper


Because of all these and other consequences of extreme weather on the Northern Hemisphere, impacts are likely to occur in commodities, food and energy, potentially pushing overall inflation higher in the coming months.


Besides an introduction, topics covered in the report are:

  • Higher inflation

  • More rate hikes

  • Potential unrest

  • Financial effects

  • Market impact


And concludes with a topic titled "Storms on the horizon", indicating:


"Extreme weather heightened by El Niño could bring market volatility, should history repeat. El Niño may result in disruptions to food production, impact the movement of goods and price of energy, cause hurricane losses for insurance companies, create geopolitical unrest, and keep rates higher for longer in some countries—particularly in emerging markets. Weather of course is difficult to forecast—as are markets—but the potential impacts are worth considering by investors".


Click at the image below for the report.




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“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.”

“I am among those who think that science has great beauty”

Madame Marie Curie (1867 - 1934) Chemist & physicist. French, born Polish.

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