Bonds decline on inflation fears, Democrats discuss Biden plan, and more corporate earnings.
Transitory
Treasury Secretary Janet Yellen this morning said that she would still say
inflation in transitory and that energy prices will moderate in the coming months. It seems that markets
may
no longer be on the same page as Yellen and other
policy makers who insist accelerating price rises will only be temporary. Data from Europe this morning showed
prices rose 4.1% in October from a year earlier, with core inflation hitting 2.1%, a level not seen in nearly two decades. The number, which was well above economist expectations, led to
further selling of the region’s sovereign bonds. There is an update on the Federal Reserve’s favored inflation gauge, the PCE Deflator, at 8:30 a.m. Eastern Time.
New plan
President Joe Biden’s latest framework for his economic agenda includes a breakdown on how the administration expects to raise the approximately $2 trillion needed. While the bulk of former President Donald Trump’s 2017 tax reductions remains intact, there is a new 15% minimum corporate tax rate. Congress isn’t in session today, but talks among Democrats will continue over the weekend. Biden, meanwhile, is in Italy for the Group of 20 meeting that will be dominated by climate discussions ahead of the UN summit in Scotland.
Earnings
Microsoft Corp. is set to become the world’s most valuable listed company when U.S. markets open today after the current number 1, Apple Inc.,
dropped on disappointing earnings. Amazon.com Inc. also disappointed, saying its entire fourth-quarter profit could be wiped out because of a surge in the cost of labor and fulfillment. Elsewhere in corporate news, China Evergrande Group avoided default again with a last-minute coupon payment to bondholders. Oil giants dominate today’s schedule with Exxon Mobil Corp., Chevron Corp. and Phillips 66 all due to report.Markets slip
The disappointing tech earnings and the latest inflation fears are putting global equity gauges under pressure. Overnight the MSCI Asia Pacific Index slid 0.6% while Japan’s Topix index closed 0.1% higher. In Europe the Stoxx 600 Index was 0.5% lower at 5:50 a.m. with better-than-expected growth data in the region not enough to push stocks higher. S&P 500 futures pointed to a drop at the open, the 10-year Treasury yield was at 1.603%, oil was at $83 a barrel and gold was broadly unchanged.
Coming up...
Canada GDP for August accompanies the U.S. September PCE Deflator at 8:30 a.m. October MNI Chicago PMI is at 9:45 a.m. and the latest University of Michigan Consumer Sentiment data is at 10:00 a.m. The Baker Hughes rig count is at 1:00 p.m. and Colombia’s central is expected to raise rates by 25 basis points at 2:00 p.m. AbbVie Inc., Colgate-Palmolive Co. and Aon Plc are also reporting results today.
What we've been reading
Here's what caught our eye over the last 24 hours.
And finally, here’s what Katie’s interested in this morning
A daisy-chain of monetary-policy repricing ripped through worldwide bond markets this week. Taking a quick tour around the globe: Australia’s benchmark curve touched the flattest in nearly a year, U.K. 30-year yields sank by the most since March 2020 at one point, while Canadian two-year yields surged by as much as 27 basis points.
That’s a lot of superlatives, but I have one more to share: the spread between 5- and 30-year Treasury rates flattened to the narrowest level since March 2020 as those global bond gyrations landed full-force in the Treasury market.
It’s interesting that the moves were mostly sparked by non-U.S. factors, given that the Federal Reserve is in a media blackout and the week was largely devoid of top-tier U.S. data until Thursday. Instead, the catalysts were largely international -- hot Australian core inflation, U.K. slashing issuance plans, and a surprisingly hawkish Bank of Canada.
Local or not, percolating global inflation fears pressured short-term rates as traders pulled forward Fed rate hike bets, while the ripple effects of those expected increases -- lower demand and slower growth -- weighed down long-dated yields.
“The long part of the yield curve is not convinced of this inflation story, and is not convinced that the U.S. economy is moving to a new higher, sustained level of growth or higher, sustained level of inflation,” said Brian Levitt, global market strategist at Invesco. “It’s telling us the Fed is going to be tightening policy, and that as they do so, that’s going to flatten they curve some.”
Follow Bloomberg's Katie Greifeld on Twitter at @kgreifeld
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