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Posts tagged 'Inflation'
US 10-year Tips are feeling the full brunt of taper-talk. First there was an abrupt sell-off on Wednesday in the 30 year sector, with break-even rates moving lower across the whole Tips spectrum after the US consumer price index fell for the first time in six months. Then there was a swift recovery with strong auction demand on Thursday following the Philly Fed.
As TD Securities’ Richard Gilhooly observed:
Treasury will auction $13bn 10yr TIPs at 1pm, a second re-opening that will take the benchmark size to $41bn. The real yield is around 61bp after the market has bounced on weaker Philly Fed, with 30yr nominals steepening out to new highs on the 5-30s curve before some aggressive buying in the 30yr sector materialised in the past half hour. 10y Real yields have ranged from 32bp in late October to a high of around 90bp in early September and an absolute low of -75bp in April of this year.
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Deficit continues to be a dirty word in the US (despite *those* findings about the holier-than-thou Clinton surpluses not being all that great), whilst the idea that the US is an unsustainable deficit spender increasingly propagates in mainstream circles.
But, as Ethan Harris at Bank of America Merrill Lynch shows on Monday, nothing could be further from the truth. In reality the US deficit is contracting at a relatively speedy rate: Read more
The FTSE index people at the LSE on Tuesday published their annual review of country classifications. There were no actual movements between the categories — Developed, Advanced Emerging, Secondary Emerging and Frontier — although two countries have joined the FTSE watch list:
Ukraine has been thrown off the list completely and is no longer being considered as a possible Frontier entrant. Too many problems with regulatory oversight and capital controls, it seems. Read more
It started when Waldman proposed a simple but elegant argument that the 1970s great inflation period may have driven not so much by expansionary monetary policy but rather population demographics: namely the baby boom and the entrance of female workers into the economy. Read more
Nomura’s Richard Koo put out a note on Tuesday reacting to the rise in JGB yields since the Bank of Japan went into QE overdrive that seems worthy of some attention.
He thinks the Bank of Japan, in reaction to yields heading upwards, needs to declare that it will not tolerate overshooting of inflation. They’ll need to rein themselves in:
What can the BOJ do? To begin with, the Bank and the government could make it clear that they are targeting a 2% rate of inflation but at the same time, they will not under any condition tolerate a significant overshooting of that rate.
The chart above is from Credit Suisse economists, who add: Read more
Gavyn Davies has a great post looking at the recent work by Fed researchers and the Goldman Sachs economics team on trends in US labour force participation and their implications for US monetary policy. See also Robin Harding last month.
To recapitulate, the US unemployment rate has continued to decline steadily, and at its current pace would hit the Fed’s 6.5 per cent threshold to begin raising rates by roughly the middle of next year. Read more
Bank of Korea has done its bit to stoke the currency wars…
Although they insist that it’s not. From BAML’s Jaewoo Lee:
In the press interview, the Governor cited a few main changes since April which led the BoK to cut in May rather than in April: the supplementary budget was finalized; many central banks, including the ECB, turned to easing mode; and the easing can help further with improving sentiments. The Governor, on the other hand, stated that today’s decision was not a response to the yen weakness, contrary to the often-voiced speculation.
(Charts via Capital Economics.)
The trend is consistent with what appears to be a spring slowdown in global growth. It’s probably worth noting that the wild fluctuations in the headline rate have had only a muted impact on core inflation in the past decade. Just something to keep in mind when you start hearing calls for policy action at the first hint of commodity price gyrations. Read more
Barclays economists write that the gap between core CPI and core PCE in the United States has widened to its largest in about a decade. They have an interesting note explaining some of the reasons why, though not all of them are clear and right now this is mainly an academic issue:
Don’t go to Australia (but do click to enlarge the charts):
Here follows a thoughtful commentary on the changes going on in gold market from BNY Mellon’s Neil Mellor, including the point that central bank purchases are in many ways helping to stabilise what might otherwise be a much more substantial slump.
Our emphasis throughout… Read more
Cheery chap, Tim Morgan, chief economist at money broker Tullett Prebon. Here’s a few charts to warm us all up on a cold February day…
Dario Perkins at Lombard Street Research has a great little note out on Tuesday arguing why it’s absolutely wrong to assume the current bond sell-off is in any shape or form a repeat of 1994.
As he notes (our emphasis): Read more
The following chart, we propose, has the potential to inspire a whole new way of looking at the gold and Treasury market: