Bottom line, the demise of the inflation trade is a bit premature. To highlight in the commodity space, the Journal of Commerce index which I continuously refer to is down just 4.5% from its February high which comes after rising by 18% y/o/y. Also, services inflation is sticky and doesn’t just fade away. This said, the markets care more about CPI which we will see tomorrow. Rent growth is slowing and might keep a lid on it as housing makes up 40% of the index. The US 10 yr yield is unchanged on the day but up 1-2 bps from just before the number came out. European sovereign yields also moved higher.
Europe
One last thing, in case you missed it, Mario Draghi was basically heckled in the Dutch Parliament yesterday as they view the evils of monetary extremism similar to the Germans. He was accused of “raiding Dutch pensioners’ wealth” according to the FT. The FT also reported that “at one point following the ringing of bells in the Tweede Kamer, the lower House of the Dutch Parliament, one MP called out that the sound was the ‘end of your QE policies.’
Also the FT reported, and this is a good one, “MP’s finished the session with a gift of a solar powered tulip, to remind Mr. Draghi of the country’s famous asset price bubble and financial crisis in the mid 17th century. ‘We want you to look at this tulip before your meetings,’ said Pieter Duisenberg, the head of the MP’s committee, and son of Wim Duisenberg, the ECB’s first president.”
[JM here: I love people who can give me snippets of information that really illuminate the context of the politics central banks find themselves immersed in. I must confess that even though I have a subscription to the Financial Times, I simply don’t have enough time to read it all. I keep my subscription because people send me links and tell me that I should read this or that article. And I have a few friends who are FT junkies and who keep me up on all the important pieces.]
A Hat Trick of Weak Treasury Auctions
We have a hat trick of weak Treasury auctions this week as the 30 year bond offering was soft. The yield at 3.05% was about 1.5 bps above the when issued. The bid to cover of 2.19 was below the one year average of 2.30 and dealers got stuck with almost 36% of the auction vs the 12 month average of 29%. Prices and yields are not responding as it’s likely explained because the supply is now done for the week and prices adjusted all week. The 30 yr yield today stands at 3.05% vs 2.98% last Friday. The 10 yr yield is up by 5 bps and the 2 yr is higher by 3 bps on the week.
With insurance companies and pension funds typically heavy buyers of 30 yr paper, it’s not as an effective measuring stick of market sentiment compared to the 10 yr and the short end auctions. The recent uptick in yields seems more in response to the rise in Europe post French vote than any positive feel on US economic data. The US Citi Surprise index sits today at -19.2 from -18.2 last Friday.
Stop Drinking Now
John here again. All that was just ones day’s output for The Boock Report. But it’s not simply the length – these are relatively short articles. It’s more the density. You could spend hours teasing out all the implications of Peter’s analysis.
Spending hours on this sort of analysis is exactly what most people shouldn’t do, of course. Certainly not every day. It tends to have a kind of paralyzing effect. With Peter’s help I can spend 5–10 minutes and understand all the key data flow that’s happening on a given day. And he does this every day. And has been doing it for years. He has an encyclopedic knowledge of the detail behind every bit of data that comes out.
What makes me particularly lucky is that I have at least a dozen Peters in my life. I have become friends with most of them over the years, and they are my “distillers” of information.
Then there are another dozen or so writers that I read for their thoughtful insights. They too have a keen understanding of how data translates into real-world developments. There is a lot of knowledge available out there, but wisdom – really good thinking – is a rare commodity.