Story time

Posted by: Paul Donovan

26 Feb 2021

Daily update

  • In today’s world, the story seems to matter more than the reality. This is the first pandemic of the Twitter era. Social media has spun stories that moved markets, but often delivered outcomes that are the reverse of the story being told.
  • Today’s fixed income story is about a sustained US inflation increase. Bond yields moved higher yesterday. The reality is that while inflation will spike in the second quarter, it is not likely to last, not likely to concern consumers, and not likely to change central bank policy. It is worth noting that the crypto Bitcoin had a collapse in spending power that would constitute hyperinflation were it a proper currency.
  • From Europe we have French, Spanish and Portuguese February consumer price inflation. There have been fewer start-of-year price discounts (why discount if people are unable to visit your store), but this effect should be fading.
  • US consumer spending should confirm that lower fear levels and the mailing of stimulus checks supported growth. The PCE deflator is also due—widely believed to be the Fed’s favored inflation measure. While consumer prices underreported inflation reality by not adjusting for shifts in spending, the PCE deflator takes this into account (though is still understates lower income groups’ inflation).

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