‘Transient’ to be tested now
Having met our target of 1.55%, we suggested following a spike to 1.75% for US 10 year yields, largely as stop-losses were triggered. In March, we suggested Treasuries would start to trade in a range between 1.50%/1.55% and 1.75%....Although it may feel that equities have been bullish throughout 2021, the move higher has largely taken place during March, as bond yields started to stabilise. If stocks cannot carry on their rally after meeting earnings expectations, and with Q2 GDP consensus expectations at 12%, is there value in holding stocks in an inflationary environment that will extend into 2022?
‘We can see a rise in inflation becoming a theme over the coming months, which is not currently being considered by markets, despite the rise in Breakeven Inflation Swaps, and this will have a dampening impact on wage growth and CAPEX…..Markets will price against higher CPI, and PPI’, Macro Thoughts, August 31, 2020.
The rise in inflation, and particularly producer prices and the cost of materials, may already be culpable for the slowdown in April’s Non-Farm Payrolls, and again market expectations continue to be far too optimistic...
Over the decade following the financial crisis it has been mostly small businesses that have been responsible for driving down unemployment to record low levels - many were forced into self-employment....Following the pandemic, many small businesses may not come back. In a booming or stable economy, there is a confidence to start up new businesses,
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