Quick Thoughts

There is a lot of movement in the markets. Stocks doing ok, but bonds reversing 1/3 of yesterday’s move and FX is about 50% in some cases. Some of this may be noise, some may be FOMC preparations for a dovish Fed. Hard to say.

Here’s what I have noticed.

Unit Labor Costs beat expectations by 0.9%, but prior quarter was revised up by 2%. Thus, productivity miracle is merely poor measurement of the data, and this signals inflation is higher than reported. This measure correlates with supercore, so wage inflation.

Yesterday we saw a huge surge in inflation swaps in response to the election.

Jobless claims again in line at 222k. Nothing to note here.

Both China PMIs have improved this week. First is services, then manufacturing. Both back above 50 with the former at 52.

Most importantly for China, home sales volumes have bounced sharply.

This is too early for stimulus to work through the system, but it is a sign that the economy is responding ahead of time to it. This means, we should expect consumer confidence to rebound from its dire status.

Meanwhile, tonight we get the NPC. Rumors are now for 12 TRN Yuan, not 10 TRN, with 2 TRN going to consumer initiatives. That would be a very big deal and is why FXI is +4.4% today. Copper has bounced 4%, which is entirely tied to China as well.

So we have data today that shows US prior data was likely more inflationary than we suspected, we have current data that continues to be quite strong, we have animal spirits waking up, we have market expectations of inflation rising and we have election uncertainty passing.

None of this makes me want to be long bonds, so today’s action is puzzling, but yesterday’s move was large, dip buyers persist everyday and we have an FOMC meeting today.

Good luck everyone.