Is it too late to address inflation? (US economic data roundup)
Central banks should be concerned how quickly the Chinese recovery is faltering, with producers bearing the brunt of higher prices.... In November 2020, Chinese 10 year yields were trading at 3.4%, but dropped to 3.15% before the end of the year, while US yields continued to rise. Following a correction to 3.3% in the first quarter, yields have since dropped to 2.85%.
Since April, we have continued to favour Investment Grade Bonds over High Yields (see our April 3 report) and in June we said: ‘Equity, Investment Grade and High Yields traders will therefore need to give the appropriate due diligence, and manage assets with higher risks to capital’.
The ISM, Consumption (Production and Employment indexes) took 2.3pp off the headline PMI number, therefore, our fears may have been confirmed, as inventories jumped from a contraction of 48.9, to 54.2. To some extent, this may reflect deliveries getting through to manufacturers, but how much of that is being caused by lower than anticipated demand and producers’ inability to pass on their higher costs, particularly as Employment contracted, being 49, from 52.9 in July, and the lowest since November?
US NON FARM PAYROLLS
It is noticeable that, despite the optimism over the return of the consumer coming out of lockdowns, leisure and hospitality was unchanged, and retail trade declined by 29,000.
It should be borne in mind that storms on the East coast will have an impact on next month’s employment data and, particularly, average earnings data, since lower paid workers will be temporarily laid off, whilst higher paid workers in the utility sector will be in demand, and offered bonuses to work in the currently extremely difficult and perilous conditions.
Regular state and enhanced federal unemployment benefits will expire by September 6 in around 24 states that have continued to offer them. This will continue to impact on Unemployment data, therefore any comments from the Fed concerning unemployment need to be taken in context, as they cannot be completely certain of the extent of labour shortage problems.
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