Follow Paul Donovan

More inflation. More market-driven.

| Posted by: Paul Donovan | Tags: Paul Donovan

  • The US consumer price inflation data was not especially threatening, nor especially surprising. Media made the most of it. This raises concerns about sensationalism in the second quarter, when US consumer prices will rise on mobile phone prices (without any prices actually rising – such is the alchemy of the CPI calculation).
  • For bond markets, the bigger concerns are US President Trump's desire for infrastructure spending, and US President Trump's desire to raise US consumer taxes via tariffs. Both would add to inflation. Deficit-financed fiscal spending would add to bond supply. Trade disputes may raise questions about the bond demand of foreign central banks.
  • The inflation numbers are relentless, with US producer prices due. Producer price inflation has more market-driven prices and is a better reflection of corporate pricing power. Most major economies have seen corporate pricing power increase over the past couple of years.
  • The Euro area trade balance is not normally a focus. With tariffs getting a higher political profile in the US, the outrageous fact that Europeans make things that Americans want to buy might be more politically sensitive. South African President Zuma has resigned, bringing to a close this particular stage of the political crisis.