The week in markets - It's all about inflation

The economy is evolving in a way that no one expected – none of the January real data hints at the recession lead indicators are showing; in fact the real data has been very strong. With the 2-year treasury back at 4.7%, just below its November high of 4.8%, risk free assets are giving stocks a run for their money.

If bond yields continue to rise, stocks will give up all their gains. If bond yields go down, stocks will go up. It all hinges on inflation. Gas prices down 50% tell us February’s inflation will be down over January. The Cleveland Fed’s CPI Nowcast predicts February CPI inflation at 6.2% year/year, down from 6.4% in January. But 3 weeks between now and the release of that number is a long time to wait for a market that’s becoming impatient.

 

Already in fact it looks like yields are close to turning back down, to judge by the benchmark, the 10 year yield, which tried to breach the 4% level yesterday and failed.

In this episode, Mark Matthews Head Research Asia at Julius Baer opines about Inflation, our take on it, and our outlook for markets.