April 19. Success in the fight against deflation… McDonalds in Japan raises prices

–Stocks fell yesterday but not much net change in fixed income, though the curve edged to slight new lows, for example red/gold pack spread fell 2.626 bps to just under 247.
–This morning the yen is under renewed pressure as G20 refrained from censure of Abe policies.  USD/JPY around 99.25, not quite at new high.  Stocks have rebounded as a result (tacit acceptance of massive QE) and perhaps partially because of progress on the Boston bombings.  ZH notes that McDonalds in Japan has raised prices… mission accomplished, we’ve created inflation! Abe and Kuroda celebrated over Big Macs and Cokes (though it’s hard to see how this transfers into wage increases and productivity improvement for Japanese labor and business).
–In the US Fed officials have been sounding a more cautious note.  From BBG “Minneapolis Fed President Narayana Kocherlakota [thursday] called for guarding the inflation target “from below,” while James Bullard of St. Louis said Wednesday, “we should defend the inflation target from the low side.”
Really?? Sounds as if central bankers have resigned themselves to the probability of a summer swoon.
–There was an interesting snippet on Business Insider about bank earnings; that sales and trading revenues have plunged, but that wealth management and bond underwriting have been solid.  Not surprising I suppose, low rates have fueled a reach for yield, exemplified by the hand-in-glove business segments that are better performers. “Hello Mr Client, these junk bonds provide a much better yield for your long term portfolio and will create wealth.” Probably a longer term plus that banks return to a stodgier model, but may also reflect negative implications for growth.

Posted on April 19, 2013 at 5:52 am by alexmanzara · Permalink
In: Eurodollar Options

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