Extreme Weather

We noted last time that some of the popular analysis of market jitters doesn’t really stand up to scrutiny. So far this month those jitters have eased. But one of their possible sources has persisted.

The punishing winter weather in the US has been devastatingly persistent. Record low temperatures have seen a long series of severe snowstorms and associated transport disruption and this pattern is expected to continue.

As well as flight cancellations there have been some sharp effects on energy markets. The shale revolution has transformed the domestic American supply picture for gas and oil, but the harsh winter has blown it back for now. Natural gas prices have spiked back to levels not seen since early 2010 and the nation soon expected to be the world’s largest oil producer has been reduced to importing heating fuel from Europe.

Inevitably, the wider economy has not gone unscathed. Most obviously, consumer activity has felt the chill, with retail sales data disappointing and fears that the inflationary effect of heating costs will see this persist into the spring. Employment numbers have been more mixed but there seems to have been a temporary effect on hiring too.

It used to be said that when the Fed sneezes, the world catches cold. Fears over tapering remain, but it is yesterday’s news. In this case it is the US which has been caught out by a nasty cold snap. Activity has suffered, the shale phenomenon behind much of America’s economic optimism has had its limits tested – and even Wall Street titans can’t like trudging under damp grey skies through sleet.

A white winter doesn’t make a proper black swan. But it has had an effect. The US recovery has been a self-conscious beacon over recent quarters; Wall Street dominates cross border capital flows in emerging markets; and Americans have even been calling time on the Great Rotation.

With the UK suffering terribly in some places from flooding and tidal surges we know that brutal weather should not be dismissed as a storm in a teacup. But we also know that in time, even the worst storms do blow over.