Treasury yields fell sharply yesterday despite a spate of strong economic reports (initial claims, retail sales, manufacturing surveys). The reaction was a ‘goldilocks’ moment for equities, as real yields fell.
There are still many medium- to long-term disinflationary risks that can support the inversion in breakeven inflation rates. Covid-19 risks remain too, with cases of infection accelerating in India, Turkey, and Japan, for example.
For now, Fed manufacturing surveys are signalling unprecedented delays in delivery times. Supply bottlenecks will push inflation up in the short-term. However, the consensus may be overestimating the transitory nature of these price hikes.
Large US importers are locking in higher shipping expenses for at least the next twelve months according to new contracts. In semiconductors, TSMC has warned that the global chip shortage could persist until 2022.
The labour market data were very strong too. Initial claims tumbled 193k in the week ending April 10th. As of April 9th, US job postings on Indeed.com had climbed 17.9% above their February 1st, 2020 levels.
