The bond market has stabilized after a huge sale, and this has given comfort to the stocks. The Nasdaq Composite, dominated by technology
COMP
has advanced for six of the last nine sessions and the Russell 2000
RUT
jumped 2.2% to bring small capitalization index gains to 35% since the U.S. election.
Will the tranquility continue? Manoj Pradhan, former CEO of Morgan Stanley, head of the global economy and founder of Talking Heads Macroeconomics, said in a presentation by fund manager Tabula Investment Management that inflation will heat up just as the Federal Reserve expects it to cool . , next year.
Pradhan argued that the breakdown of the Phillips curve, the traditional relationship that shows inflation increases as unemployment decreases, occurred due to China’s entry into the world labor force. But he said the demographics and the COVID-19 pandemic will fix it.
First, to demographics. The aging population of the United States and the developed world will mean a loss of workers and the aging population is also creating an increase in public spending. Pradhan also noted that caring for the elderly requires a lot of manpower. “We need technology to destroy jobs in other parts of the economy, so we can reallocate the labor it frees up to care for the elderly, with a similar skill level,” he said.
Towards the pandemic. Right now, he said, the money supply signals give the “most extreme signals you’ve ever seen.” Now it hasn’t translated into inflation, because the speed of money has collapsed and the savings rate has risen, both functions of consumers locked in at home. Citing European Central Bank research, Pradhan said the increase in savings is “forced” rather than “preventive”.
As the economy normalizes, forced savings will act as a delayed stimulus. Even now, the real estate market is on fire, and prices are rising around the world. “This is a way of spending that can also drag down some of that labor surplus,” he said. But the rise in house prices does not appear in the official measures of inflation.
The Fed is already trying to meet the challenge of upcoming inflation readings which, in May and June, may show gains of 3.5% to 4% year-on-year. “I will tell you that anything above 3.5% -4% will create a significant breakdown of correlations [between stocks and bonds], because people haven’t seen inflation really significantly in advanced economies in the last 30 years, ”he said.
“The real challenge will come in 2022, when a lot of spending on goods or housing will have been deployed, monetary aggregates will continue to be high with increasing speed,” he said. He expects the yield curve to increase further and that if the Fed implements another Twist operation or a control of the yield curve, inflation will rise further.
Asset returns will be harder to extract, inequality will fall, but in a context of weak growth and the independence of central banks will be increasingly threatened, he said.
WeWork agreement
Shared office provider WeWork has agreed to merge with a special-purpose acquisition company BowX Acquisition Corp.
BOWX
with a valuation of $ 9 billion. The Wall Street Journal reported that media startups Axios and The Athletic could merge and then go public with a merger with a SPAC.
The Ever given container ship remains stagnant in the Suez Canal, disrupting approximately $ 10 billion in trade per day.
L Brands
LB
he raised his earnings outlook, citing sales trends he expects to be driven by changes in consumer spending patterns stemming from government stimulus controls, easing of COVID-19 traffic restrictions and other factors.
Friday’s data calendar includes personal income, consumer spending and the February PCE price index, as well as the first trade and inventory revisions.
The Fed said temporary limits on dividend payments and share repurchases will end for most banks after June 30.
Another day up?
Future US stock markets
ES00
NQ00
they signaled a quiet start as the 10-year Treasury yield
TMUBMUSD10Y
rose to 1.67%.
Crude futures
CL.1
they were approaching $ 60 a barrel, while the dollar
DXY
it was constant.
Random readings
NASA is preparing to fly over a helicopter over Mars.
Nothing like the pandemic that inspires competition for the important cover of the year.
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