10.05.2021
Inflation
Wednesday’s US CPI dominates the week ahead. Despite the undershoot in US Payrolls, market expectations for US inflation rose aggressively on Friday. The common narrative being that a weak labour market ensures the Fed keep monetary policy easy for longer.
5y TIPS break-evens are in line with macro fair value but 10y break-evens & the closely watched 5y5y forward inflation swap are both now high versus model value. The former are 0.5 sigma above, the latter 0.9 sigma; both currently equate to spot being around 13bp high versus model.
So relative to economic growth, commodity prices, Fed rate/QE expectations etc, inflation expectations look elevated.
Qi does not model the US Consumer Price Index. Qi displays the macro anatomy of the financial instruments that reflect market expectations for future inflation. This should not be interpreted as a call on US inflation itself. It shows how aggressive the re-pricing of US inflation expectations has been relative to other macro factors & financial assets.
So relative to economic growth, commodity prices, Fed rate/QE expectations etc, inflation expectations look elevated.
Qi does not model the US Consumer Price Index. Qi displays the macro anatomy of the financial instruments that reflect market expectations for future inflation. This should not be interpreted as a call on US inflation itself. It shows how aggressive the re-pricing of US inflation expectations has been relative to other macro factors & financial assets.
