Equities felt uninspired ahead of a week that promised no shortage of tradable data. A bevy of key reports out of the US including CPI and retail sales will give folks an excuse to tweak their narratives and perhaps their positions. China too is set to serve up a slate of top-tier numbers.
In addition to the packed data docket, bonds will focus on the return of supply, while equities will need to digest the beginning of earnings season. “Bond yields are always the most critical macro concern in a rising interest rate environment, especially to long-duration assets,” AxiCorp’s Stephen Innes remarked. “More broadly, US markets will continue to focus on bond issuance, set to see a monthly record.”
“Interestingly, inflation expectations have fallen ever so slightly during the month of April… underscor[ing] the view that higher inflation prints this spring are to some degree already expected and priced in,” BNY Mellon’s John Velis said Monday. “While the Fed – and many others – thinks that the increase in inflation in H1 2021 will be only transitory and therefore not to be worried about, we still think the risks are for higher than expected inflation in the second half of the year, complicating the Fed’s job, even with its new AIT framework,” he added.
Jerome Powell reiterated familiar talking points during an interview with 60 Minutes broadcast over the weekend. “What we said was we want to see inflation move up to 2% and we mean that on a sustainable basis,” he told Scott Pelley, adding that,
We don’t mean just tap the base once. But then we’d also like to see it on track to move moderately above 2% for some time. And the reason for that is we want inflation to average 2% over time. And when we get that, that’s when we’ll raise interest rates.
Asked if the world’s largest economy (which is still the US economy for another few years) is “still in jeopardy,” Powell said it’s at crossroads. “What we’re seeing now is really an economy that seems to be at an inflection point,” he explained, before elaborating,
We feel like we’re at a place where the economy’s about to start growing much more quickly and job creation coming in much more quickly. So the principal risk to our economy right now really is that the disease would spread again. It’s going to be smart if people can continue to socially distance and wear masks.
I’ll confess I wouldn’t have the same measure of patience that Powell has when it comes to discussing epidemiology. He’d be forgiven if he just said something like “Listen, folks, I’m not here to be your friend. And I’m not a politician, so I don’t need your vote. Where a damn mask until everybody’s vaccinated. And wash your nasty hands. Use some common sense. That’s all ol’ Jay’s got for you on the virus. Next question, Scott.”
Pelley asked about the tents. Those pesky tents. “I met a woman recently, Courtney Yoder, who was working full-time but still living in a tent. And then COVID came along and she lost her restaurant job,” he said.
A lot of people lost restaurant jobs. And the industry is nowhere near “great again” (familiar figure below), even after adding more than a half-million jobs in the first three months of 2021, including 176,000 in March.
After quoting Yoder, Pelley pressed Powell. “You have people living in tents about a block from here. Have you seen them?”
“Yes, I have,” Powell responded. “I can tell you exactly where they are. I see them coming to and from work regularly.”
Last week, during remarks to an IMF panel, Powell talked about what he described as a “pretty substantial tent city” through which he drives on his daily commute. Now, we know where he got that talking point. The interview with 60 Minutes was recorded the day before.
“When you see those tents. What do you tell yourself?,” Pelley wondered.
“Well, it tells me that we don’t have the answer to everything,” Powell sighed.
Say what you will about Powell, but you won’t hear that kind of candor every day from a central banker.
Note that if Powell’s cadence in the clip (above) doesn’t betray something like earnestness, then he’s a damn good actor.
“But he did help a few people get out of your slums, Mr. Potter, and what’s wrong with that?……they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and work and pay and live and die in a couple of decent rooms and a bath?”
The head of the federal reserve is what we used to call a vegetarian republican. I worked at the same firm as Mr’ Powell, and while we didn’t interact, I was in a position to observe. It was a small private investment bank that was consistently rated most trustworthy. It was a partnership, which resulted in a modest view of acceptable risk. Wall Street is highly influenced by the demonstration effect. Private equity and hedge funds make people feel victimized if they don’t make a certain ammount of money. I believe private equity is a trojan horse, politically and economically. I believe hedge funds and banks are far too able to punt their risk to the government. Stock buybacks are an offshoot of this kind of thinking. Look what happened with the airlines. They ended up buying back all that stock for free…..The wolfhound is right, the cannibal is wrong…..