Aug 15. Inflation concerns?
–Not much net change in interest rate futures yesterday…no bounce. However, the back end of the curve firmed ever so slightly with gold euro$ pack up 2 bps. Notable buyer of 14k TYX (Nov) 123 p for 46 to 47 …new position, 30 delta. (Late Oct expiration…timed for debt ceiling/budget battle? )
–Quite a bit of data today with CPI expected +0.2 both Core and Headline. The main CPI number has been fairly volatile over the past year, ranging from +0.7 to -0.4. Jobless Claims expected 330k, Empire State 10.0, Industrial Production +0.3 and Philly Fed expected 15.0 from 19.8.
–The idea of increasing inflation seems to be gaining traction as David Rosenberg put out a piece indicating a shift from deflation to inflation as skilled labor tightens, etc. (Link below) Japan appears to have turned the corner as well, though Reuters reports that talk of a corporate tax cut there is being muffled as an increase in the sales tax looms (fiscal retrenchment may hinder the fight against deflation). However, yoy Core PPI was up only 1.2 yesterday. On the other hand, precious metals are showing signs of life with gold rebounding from lows in early July and silver gaining nearly 7% in the past 6 sessions. Crude stronger this morning nearing $108. The Canadian $ and Aussie are also firming, with Canada’s chart (futures) tracing out a similar path to the ten year note. However, in the past few sessions those paths have diverged as Canada continues to strengthen while bonds tanked.
–The other theme that bears watching is possible weakness in stocks as margin debt is near all time highs and there are multiple Hindenburg omens along with other technical signs that the market is overbought. A violent pullback would likely translate into bond support; not as likely on a grudging sell off.
