As we await whether an airline bailout takes place and what comes of the Mnuchin/Pelosi back and forth, I can’t stop staring at a 10 yr yield of just .65% and believing that even with all the Fed manipulation, it still is messaging a rather lackluster economic environment. That said, when looking at the last 3 months of the year, I think the tone of the vaccine news might very well be the biggest factor directing where longer term yields go from here, likely along with the election results. To my inflation thesis and its influence on bond yields, that is still intact but something that plays out over the coming 12 months and which an effective vaccine will facilitate the pressures.
Speaking of inflation, CPI in Tokyo in September was unchanged y/o/y ex food and energy vs the estimate of -.2%. Creating a farce for the whole exercise of the BoJ wanting higher inflation, we have the new PM Suga that wants lower mobile phone fees. If lower prices are desired for one service, why isn’t it good for all?
The Economic Confidence index in September for the Eurozone improved to 91.1 from 87.5 and that was higher than the forecast of 89 and up for a 5th straight month after the 38 pt combined plunge in March and April. All 5 categories saw gains but the biggest one was in the services component which rose 6 pts to the least negative since March. Manufacturing was up by 1.7 pts, consumer confidence by .8 pts, retail by 1.8 pts and construction by 2.2 pts. While the euro is getting a lift in response, European sovereign bond yields are lower and stocks are flattish. While most European countries have sclerotic welfare states that limit its growth, the best gift that can be given is a lifeline to the region’s banking system with the ECB reversing its NIRP policy. But we unfortunately know that’s not happening anytime soon with them already 6 yrs in. If Europe does get inflation at some point and a yield curve again, there is plenty of value to be had in European stocks.
EU ECONOMIC CONFIDENCE INDEX
After seeing slippage in German consumer confidence last week, the French index for September was unchanged with August at 95. That though is better than the estimate of 93 and last month was revised up by 1 pt but, no improvement since the 95 print in April which followed 103 in March and 104 in February.
FRENCH CONSUMER CONFIDENCE