For the first time since 2011-2012, inflation surprises are positive in many parts of the world. The Citi Inflation Surprise Index is at the highest level since 9/2011 in Asia-Pacific, it’s at the highest level since 10/2011 for the Eurozone, and it’s at the highest level since 5/2012 in the emerging markets.
It is somewhat hard to believe but oil prices are up nearly 90% over the past year. The past two times oil prices have increased this much year-over-year, US 10-year bonds rallied quite significantly. In 2008, oil was up over 100% in July and bond yields were hovering just over 4%.
The latest NFIB Small Business Survey was a blow out report if there ever was one. Small business optimism increased to 105.8 in December from 98.4 in November and well above expectations of 99.5.
‘Quality’ is one of the those terms in finance that if you ask three different investors to define you get four different answers.
For the past couple of months, and especially since the US presidential election, US financial stocks have been on a great run. On an equal-weighted basis, US mid and large cap financial stocks are up a scorching 16.7% over the past 50 days.
At least since 2003 (which is when our data on TIPS begins), the dollar and breakeven inflation expectations have had a negative relationship. Said differently, when the dollar strengthens (as it has done recently) inflation expectations tend to fall and vice versa.
The December Conference Board Consumer Confidence survey had some interesting results. One of the more noteworthy changes were in regards to equity price expectations.
Most of the time not a whole lot actually changes in the markets over the course of a month. For example, small cap stocks tend to outperform large cap stocks by a rather mundane 31 bps over the course of a month on average going back to 1996.
The Fed has communicated that the plan for 2017 includes three rate hikes. The market isn’t quite buying into that plan yet.
According to the Fed’s dot plot, the fed funds rate will be 2.125% be December 2018. This is about 40 bps higher than what the current Dec 18 fed funds futures contract is pricing in.