The reflation narrative was alive and well to kick off the new week, as market participants appear confident that more US stimulus is a foregone conclusion.
Janet Yellen’s advocacy over the weekend looked to win “hearts and minds,” so to speak, and the media had fun juxtaposing her network cameos with inflation warnings from Larry Summers, who seems to believe that the only way to stay relevant is to spend his weeks criticizing Joe Biden’s stimulus plan.
30-year yields stateside hit 2% for the first time in a year, while 10-year breakevens hit 2.21%.
“Despite a disappointing jobs report and other recent weakness in data, markets appear to be looking through the soft patch—yield curves have steepened and breakevens have widened substantially since the start of the year,” Goldman’s Praveen Korapaty said. “Given our view that this weakness is likely to prove temporary, we think the market reaction is appropriate,” the bank added, writing that “traded inflation appears to have largely repriced to the Fed achieving a 2% target; to get additional widening from here, markets would have to start pricing in ‘extra’ premium.”
Obviously, it helps that Democrats are moving forward on their own (i.e., without Republican support) on Biden’s relief proposal. That suggests that while the White House may been keen on bipartisanship, that doesn’t mean the administration is willing to countenance any kind of belabored, drawn-out negotiating for the sake of securing a “better” headline price tag. Americans won’t be sacrificed at the deficit alter. Or at least that’s the message Democrats are trying to send. Hopefully, for the sake of the downtrodden masses, they mean it. You can be absolutely sure that none of the people represented in the figure (below) care about the deficit.
Brent, meanwhile, pushed through $60, even as the dollar firmed after Friday’s sharp drop. “What makes this unrelenting uptrend [in crude] all the more striking is that it comes against a backdrop of lockdown extensions and reduced oil demand,” PVM’s Stephen Brennock remarked on Monday. “The oil market is crawling back to normality but there is an excessive degree of bullish exuberance floating around,” he went on to say. “Expect a cooling off period to take hold in the not-too-distant future.”
Markets seemed unconcerned with Biden’s rather somber take on the timeline for herd immunity. Nor did folks seem particularly unnerved by developments in South Africa, where researchers halted a vaccine trial after the shot proved ineffective in a small sample at protecting against the variant first identified in the country.
Notably, CPI is on deck in the US this week. That’ll give the market a chance to compare inflation expectations to “actual” inflation, with the scare quotes meant to pacify all critics of officially reported inflation figures.
“As it stands right now, traders are willing to look through just about anything with the US re-opening narrative getting a boost for vaccination protocols that should continue to flatten the curve and with the gale-force stimulus tailwinds supporting a spring break re-opening,” AxiCorp’s Stephen Innes said Monday.
Nobody wants to see the bad. After all, the world saw enough “bad” for one lifetime in 2020.
The South Africa variant is frightening.
I am not a big fan of WHO- as I see it , they could have done far more than they have done to date and have wasted a lot of money. However, they have done fairly well in worldwide efforts of vaccines. Hopefully, Biden will include a substantial sum of money in the stimulus package for global vaccine efforts. McConnell is a polio survivor and may be more willing to give money to global vaccine efforts than we might normally expect.
Bill Gates has committed in excess of $500 million to global vaccine efforts because he knows that without a global effort, our life will never have a chance of returning to a “normal” existence where we can travel among the citizens of the world with only secondary/minimal concerns regarding health.
India is still high on my list of places that I would like to visit.