Hey Folks, the Bond markets seem to be in agreement with the US Feds in that Inflation is transitory. We will get more insight into the FED thinking during next week’s FOMC Policy Statement and “Boom Boom” Powell’s press conference next Wed. No doubt it will be heavily followed.
In the meantime enjoy our take on the current markets in this week’s Round-Up.
WEEKLY SOUND BITES:
- A sharp decrease in longer-term bond yields appeared to help push the S&P 500 Index to a record high in a week of relatively light summer trading with the 10 Year Treasury closing at the lowest levels in 3 months. The decline in yields favored growth stocks by reducing the implied discount on future earnings while weighing on financials by threatening bank lending margins. While the Bond markets are very quiet, Inflation has been running very hot with the latest readings showing over 5% annual rates.
- On Thursday, yields jumped briefly after the Labor Department reported that core (less food and energy) consumer prices had risen 0.7% in May, well above the consensus estimate of 0.4%. The annual headline print reached a 13-year high of 5.0%, while the one-month reading totaled 0.6%, due in large part to a jump in used car prices. The University of Michigan’s survey of consumer sentiment, released Friday, showed that Americans expected prices to rise 4% in the current year, versus the previous month’s read of 4.6%. Consumers also grew more confident, with the survey’s overall sentiment gauge reversing much of May’s decline. And there is a record number of Job Openings coming in at 9.3 million.
- Interest rates and inflation seemed to continue to dominate sentiment. The yield on the benchmark 10-year U.S. Treasury note decreased throughout most of the week, seemingly pushed lower by recent assurances from Federal Reserve policymakers that they would keep monetary policy highly accommodative for “some time” and that the recent spike in inflation would prove temporary. The 10-year U.S. Treasury note fell to its lowest level in three months. Next Week’s key FOMC Policy Statement and Jerome “Power Ranger Boom Boom” Powell’s press conference will be most interesting.
- Like the US, Eurozone government bond yields largely fell, reflecting the ECB’s commitment to continue its bond-buying program at the current pace for another quarter. The central bank forecast also called for inflation to subside and come in well below its target in 2023. The ECB left its key policy measures unchanged and said that it would maintain emergency bond-buying at a higher pace for the next quarter, even though the central bank’s updated forecasts called for higher rates of inflation and economic growth. The ECB expects eurozone inflation of 1.9% in 2021, up from the previous estimate of 1.5%. The central bank’s revised forecast calls for inflation to slow to 1.4% in 2023. The eurozone economy is expected to grow 4.6% this year and 4.7% next year—in both instances, a 60-basis point increase from the ECB’s previous forecast.
- Chinese State media reported that the U.S. and China agreed to renew talks on improving trade and investment ties. In China’s bond markets, the trend in yields since late May has been gradually higher. The yield on the 10-year Chinese government bond rose four basis points to close at 3.15% following higher producer price inflation. China’s inflation data for May were mixed. The producer price index (PPI) rose to 9.0% year over year from 6.8% in April due to higher commodity prices. The bigger-than-expected jump in the PPI marked its highest level since 2008.
Weekly Round-Up;
Don’t Be a Rat Brain Trader – Be the Red Strip Zebra !!
Trade Smart !
hpb
