US macro/initial claims/PPI

Returning to a couple of prints from Thursday and Friday.


Firstly PPI (see top right), producer price index, like the CPI, but rather than consumers, it is for producers, PPI is used to map to PCE, personal consumption expenditure price index, which is what the Fed targets for the rate of inflation when setting monetary policy.

Basic story, it continues to behave, and at 2.3% YOY looks a lot like prior years, when inflation was not on anyone’s radar. That’s good! Goldilocks (as shorthand for market friendly conditions) continues.

Jobless claims

Thursday’s initial claims for unemployment benefits (see third row, first column) and continuing claims (see top right) drifted higher again. Initial claims at 242K is still very low, but, like unemployment, hard to deny that a turn is on. Most macro data is like that, your looking for turning points, trying to work out what it might mean, and using other correlated data to help confirm what you think you might be seeing. Mostly, it means squinting at charts.

Using seasonplots to get a better handle on trends, we can see the initial claims is “unseasonally” moving higher, which suggests that things might indeed be weakening, at the margin.

Bonds liked it, yields fell across the board for both Thursday and Friday, and in general the whole week was quite good for bonds. In turn, believe it or not, yields are in fact down over the past 3 months (see far right column) for the US, UK, Canada, South Korea, China, and close to flat for NZ and Australia.

Geopolitical risks associated with FREXIT have caused France and, perhaps in sympathy, Italy, to rise.

Our general point, above 4%, historically owning/buying bonds has worked out very well.

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