Thursday 10, February 2022

YoY CPI in the USA hit 7.5% last month. You have to go back a long way to find a print like that. The measure excluding food and energy was lower, but still high.

The Atlanta Fed GDP Now reading is heading down. It is now running at less than 1%. This still means that nominal GDP is growing at 8.5%, which is a pretty good clip, and quite enough to sustain the housing market.

The inflation figures, although they were close to forecasts, did push up short term rates again. Global rates, from eurodollar futures (implied), to gilts, to 10Y USTs, to gilts all ticked up. The 10Y yield has now crept above 2%. Although the redemption yield does not correspond to a single point on the discount curve, it’s an important figure, and will keep different duration borrowings in equilibrium. The very short end (3M) is still pinned to 41bp, but it goes up quite steeply: 1Y is 1.14% (i.e. 4 hikes), which keeps an upwards sloping discount curve.

Stocks took the inflation figure to heart: NDX down over 2%. With real yields so negative, I can’t see that’s fully justified, but I would be still very reluctant to get long at these levels.

Commodities are all strong: WTI crude still managed to tick up, in the face of an increased probability of more severe tightening. European nat. gas is up over 300% YoY. At some point, energy has to go down.

Nearly all commodities are up YoY, except solar energy and gold. Gold is practically flat. Solar energy is an odd index based on the share price of stocks in the industry, and so is not a commodity in the normal sense. For more info. take a look at tradingeconomics.com.