The market premium for the US 10-year Treasury yield eased in December after rising for two straight months. The analysis uses a “fair value” estimate calculated by CapitalSpectator.com. Despite the downshift, the market continues to price the 10-year yield at a relatively high level compared with the pre-pandemic range.
Macro Briefing: 16 January 2025
US consumer inflation sped up in December, rising 2.9% vs. the year-ago level. The faster pace marks the third straight month that the consumer price index at the headline level picked up. The current rate is the highest since July. The core rate of CPI, by contrast, ticked lower to 3.2%, which is holding within a tight 3%-plus range that’s prevailed recently. “When you step back and look at the overall state of inflation, we’re not really going anywhere,” says Sarah House, senior economist at Wells Fargo. “While there has been progress, the pace has been really disappointing.”
Commodities Are The Upside Outlier So Far This Year
January is shaping up to be a rough month for the major asset classes, with one exception: commodities. Using a set of ETF proxies, a broad measure of commodities is posting a solid gain year to date. In sharp relief, the rest of the field is mostly in the red, with the exception of one market that’s flat, based on trading through Jan. 14.
Macro Briefing: 15 January 2025
US producer price inflation increased to a 3.3% year-over-year level through December. Although that’s below expectations, it’s also the fastest pace since Feb. 2023. “Better than expected is not necessarily what the Fed wants to see before easing monetary conditions into a fast-growing economy, with tariffs and tax cuts on the agenda of the incoming administration,” says Carl Weinberg, chief U.S. economist at High Frequency Economics.
US Q4 GDP On Track To Post 2%-Plus Growth
The US economy is still expected to post a slower growth rate in the upcoming fourth-quarter GDP report. But in a sign of confidence that a respectable expansion persists, the projected rate of expansion picked up in today’s nowcast vs. the previous estimate.
Macro Briefing: 14 January 2025
The US 10-year Treasury yield continues rising, trading at 4.79% on Monday, the highest since early November 2023. “Bond investors are sending a clarion call to the world’s fiscal authorities to get a grip on their budget trajectories, lest they be subjected to additional wrath,” says Tony Crescenzi, an executive vice president at Pimco.
2024 Ends With Resilient US Payrolls Data
The US economy added more jobs than expected in December, providing a fresh dose of optimism that the labor market will remain strong for the near term. There’s lots of uncertainty ahead as Trump 2.0 is set to get underway, but it’s fair to say that the incoming administration inherits a labor market that’s humming.
Macro Briefing: 13 January 2025
China’s trade surplus surged to nearly $1 trillion in 2024. Driven by strong exports, the news arrives ahead of expected US policy changes on import tariffs after President-elect Trump moves into the White House on Jan. 20. The New York Times reports: “When adjusted for inflation, China’s trade surplus last year far exceeded any in the world in the past century, even those of export powerhouses like Germany, Japan or the United States. Chinese factories are dominating global manufacturing on a scale not experienced by any country since the United States after World War II.”
Book Bits: 11 January 2025
● The Corporation in the Twenty-First Century: Why (Almost) Everything We Are Told About Business Is Wrong
John Kay
Review via Financial Times
When capital-intensive plant and machinery were the means of production, the capitalist elite had permanent power over the workers. But now control resides with professional managers who derive power not from ownership of the physical means of production or accumulated wealth but from their transient role in the business. Thus “the workers are the means of production” — and Kay’s italics are important.
Building on this, the importance of capital needs downgrading and redefining, argues Kay, a former FT columnist. In a suggestion that will jar with those actually running businesses or trying to start them up, the capital requirement of modern business is relatively modest. But it is difficult to argue with the observation that the modern IPO is more a means of enabling founders to extract capital than to raise it.
Introducing The US 5-Year Yield Opportunity Index
Inflation risk is topical again, as I’ve been discussing this week. As a result, the bond market is demanding a higher yield premium to compensate for the possibility that inflation will be higher than recent expected. The question for investors: Does the runup in Treasury yields to date suffice, given the current inflation expectations? In the first of a series of new indexes to help shed light on an answer, here’s a look at CapitalSpectator.com’s US 5-Year Yield Opportunity Index (YOI).