Tag Archive: inflation expectations

Weekly Market Pulse: Growth Scare?

A couple of weeks ago the 10 year Treasury note yield rose 16 basis points in the course of 5 trading days. That move was driven by near term inflation fears as I discussed last week. Long term inflation expectations were and are well behaved.

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Weekly Market Pulse: Inflation Scare!

The S&P 500 and Dow Jones Industrial stock averages made new all time highs last week as bonds sold off, the 10 year Treasury note yield briefly breaking above 1.7% before a pretty good sized rally Friday brought the yield back to 1.65%. And thus we’re right back where we were at the end of March when the 10 year yield hit its high for the year.

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You Don’t Have To Take My Word For It About Eliminating QE

You don’t have to take my word for it. QE doesn’t work and it never has. That’s not just my assessment, pull out any chart of interest rates for wherever gets the misfortune of having been wasted with one of these LSAP’s.

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Weekly Market Pulse: Inflation Scare?

Bonds sold off again last week with the yield on the 10 year Treasury closing over 1.6% for the first time since early June. The yield is now down just 16 basis points from the high of 1.76% set on March 30. But this rise in rates is at least a little different than the fall that preceded it.

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And Now Three Huge PPIs Which Still Don’t Matter One Bit In Bond Market

And just like that, snap of the fingers, it’s gone. Without a “bad” Treasury auction, there was no stopping the bond market today from retracing all of yesterday’s (modest) selloff and then some. This despite the huge CPI estimates released before the prior session’s trading, and now PPI figures that are equally if not more obscene.

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What’s Going On, And Why Late August?

This isn’t about COVID. It’s been building since the end of August, a shift in mood, perception, and reality that began turning things several months before even then. With markets fickle yet again, a lot today, what’s going on here?

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Inflation Karma

There is no oil in the CPI’s consumer basket, yet oil prices largely determine the rate by which overall consumer prices are increasing (or not). WTI sets the baseline which then becomes the price of motor fuel (gasoline) becoming the energy segment. As energy goes, so do headline CPI measurements.

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Transitory, The Other Way

After a record three straight months of decline for the seasonally-adjusted core CPI March through May 2020, it turned upward again in June. Buoyed by a partially reopened economy, the price discounting (prerequisite to the Big D) took at least one month off.

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ECB Doubles Its QE; Or, The More Central Banks Do The Worse You Know It Will Be

A perpetual motion machine is impossible, but what about a perpetual inflation machine? This is supposed to be the printing press and central banks are, they like to say, putting it to good and heavy use. But never the inflation by which to confirm it. So round and round we go. The printing press necessary to bring about consumer price acceleration, only the lack of consumer price acceleration dictates the need for more of the printing press.

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Schaetze To That

When Mario Draghi sat down for his scheduled press conference on April 4, 2012, it was a key moment and he knew it. The ECB had finished up the second of its “massive” LTRO auctions only weeks before. Draghi was still relatively new to the job, having taken over for Jean-Claude Trichet the prior November amidst substantial turmoil.

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Monthly Macro Monitor: Market Indicators Review

Is the recession scare over? Can we all come out from under our desks now? The market based economic indicators I follow have improved since my last update two months ago. The 10 year Treasury rate has moved 40 basis points off its low. Real interest rates have moved up as well but not quite as much. The difference is reflected in slightly higher inflation expectations.

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The Consequences Of ‘Transitory’

Europe’s QE, as noted this weekend, is off to a very rough start. In the bond market and in inflation expectations, the much-ballyhooed relaunch of “accommodation” is conspicuously absent. There was a minor back up in yields between when the ECB signaled its intentions back in August and the few weeks immediately following the actual announcement.

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Big Trouble In QE Paradise

Maybe it was a sign of things to come, a warning how it wasn’t going to go as planned. Then again, when it comes to something like quantitative easing there really is no plan. Other than to make it sound like there is one, that’s really the whole idea. Not what it really is and what it actually does, to make it appear like there’s substance to it.

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Just Who Was The Intended Audience For The Rate Cut?

Federal Reserve policymakers appear to have grown more confident in their more optimistic assessment of the domestic situation. Since cutting the benchmark federal funds range by 25 bps on July 31, in speeches and in other ways Chairman Jay Powell and his group have taken on a more “hawkish” tilt. This isn’t all the way back to last year’s rate hikes, still a pronounced difference from a few months ago.

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Big Difference Which Kind of Hedge It Truly Is

It isn’t inflation which is driving gold higher, at least not the current levels of inflation. According to the latest update from the Bureau of Economic Analysis, the Federal Reserve’s preferred inflation calculation, the PCE Deflator, continues to significantly undershoot. Monetary policy explicitly calls for that rate to be consistent around 2%, an outcome policymakers keep saying they expect but one that never happens.

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Janus Powell

Again, who’s following who? As US Treasury yields drop and eurodollar futures prices rise, signaling expectations for lower money rates in the near future, Federal Reserve officials are catching up to them. It was these markets which first took further rate hikes off the table before there ever was a Fed “pause.”

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The Real End of the Bond Market

These things are actually quite related, though I understand how it might not appear to be that way at first. As noted earlier today, the Fed (yet again) proves it has no idea how global money markets work. They can’t even get federal funds right after two technical adjustments to IOER (the joke).

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FOMC Minutes: The New Narrative Takes Shape

Nothing the Fed did today, or has done up to today, has changed the curves. Eurodollar futures and UST’s, they are both still inverted. The former sharply inverted. The only thing that has changed since early January is the narrative – and not in a charitable way. It is treated as a positive when it is a pretty visible signal about deteriorating circumstances.

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Nothing To See Here, It’s Just Everything

The politics of oil are complicated, to say the least. There’s any number of important players, from OPEC to North American shale to sanctions. Relating to that last one, the US government has sought to impose serious restrictions upon the Iranian regime. Choking off a major piece of that country’s revenue, and source for dollars, has been a stated US goal.

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