The chief economist of the Bank of England, Andy Haldane, is leaving at month’s end but he remains the most hawkish committee member and he’s speaking out again and flexing on that reputation. He referred to the recent higher inflation stats by saying there was “some pretty punchy pressure on prices…If both pay, and costs are picking up, inflation on the high street isn’t very far behind. And that’s something, you know, people like me are paid to keep a close eye on and we are. And that may mean that at some stage we need to start turning off the tap when it comes to the monetary policy support we have been providing over the period of the Covid crisis.” As there has not been as vocal a hawk amongst his colleagues, the pound is only up slightly in response and gilt yields are following other markets lower but the point remains that pressure is growing on central banks to ease up a bit and the calls for it will only grow.
With respect to US Treasuries ahead of the 10 yr note auction this afternoon and CPI tomorrow, we are at the lower end of the 1.50-1.75% range. Looking at TLT, the 20 yr+ Treasury ETF, it is the most overbought according to the RSI since August 2020 when it was about ETF was 20% higher. It remains down 11% on the year.
We saw two more inflationary anecdotes yesterday. Sherwin Williams said in response to its rising raw material costs, “we are implementing additional price increases across all our segments, including a 7% August 1st price increase in The Americas Group.” Chipotle at conference said they raised menu prices by 3.5-4% just last week.
TLT
In response to the same price pressures being felt everywhere, China said its producer price index for May rose 9% y/o/y, up from 6.8% in April and above the estimate of up 8.5%. A statistics bureau economist said 1/3 of the rise was due to easy comps. Consumer prices were up by 1.3% y/o/y vs .9% in April but that was 3 tenths less than expected. They actually fell m/o/m for a 3rd month as pork prices fell sharply, offsetting higher food prices elsewhere. So at least in China, they are right now feeling a major margin squeeze rather than consumers feeling the brunt of the inflation experienced by businesses. And we’ll see in coming quarters how much of China’s PPI spike the US and others will import. Chinese bond yields were little changed but the yuan is higher again as are most currencies today vs the US dollar. Chinese stocks were mixed.
The only data of note in Europe was the German trade data where both exports and imports were about as expected when we include the March revisions. German inflation expectations are getting back almost what it lost yesterday, up by 2 bps after a 3 bps drop. The ECB meets tomorrow and we’ll see how vocal the German members are and whether the Bundesbank still has relevance.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.