The new highs in the 5-yr yield yesterday confirm my view of the jobs report. The Fed sees rates as accommodative and is worried that commodity inflation (PPI) could eventually move the CPI. The economy is not very strong though which could lead to political pressure to choose inflation over unemployment. That jobs number confirmed economic weakness while still putting up a strong headline number for employment growth. That leaves us with accommodative rates, commodity inflation and no pressure to keep rates low.
Stocks are tough to call here. They may be a safe haven against inflation and can lag interest rate moves by months. I tend to think they will have a negative short-term reaction to higher yields but we now have lots of support from last year's highs and this year's lows nearby.
The ECB is making some tough talk about inflation but I still see their next move as a liquidity increase to bring the Euro down. I have thought that for over a year.
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