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Inflation in the U.S. has exceeded expectations, why is the yield of 10Y U.S. Treasuries falling? | Global Weekly|US Treasury_Sina Finance_Sina.com

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Qin Tai PhD Chief Macro Analyst

Wang Maoyu Macro Analyst

Shen Wan HongyuanMacro

Global Weekly

Zhou’s view: Why is the U.S. 10Y Treasury yield falling?

In the second year after the outbreak of the new crown epidemic, the US CPI has basically returned to the level before the 2008 financial crisis. Is this the beginning of a new round of crisis or the beginning of a downward trend?

5The monthly U.S. CPI was 5.0% year-on-year, and the core CPI was 3.8% year-on-year, which exceeded market expectations. However, from a month-on-month perspective, both fell from the previous month, and the core CPI fell more than the overall CPI. Therefore, the market had long expected the month-on-month decline in CPI inflation. , And the point that exceeded expectations this time is mainly due to the limited decline in core products from the previous month.

Inspired by the previous fiscal subsidies, it is mainly durable goods such as furniture that are driving commodity inflation. In May, the main driving force of U.S. commodity inflation shifted to car prices, but the overall core commodity prices were cooling down as subsidies gradually declined.1The rapid rise in US import prices shows that the recovery of domestic manufacturing capacity in the US is still relatively slow. Combined with the cooling of overall commodity inflation in the US, this indicates that this is mainly due to the decline in US commodity demand, not the result of the recovery of US industrial production. 2) In May, the price of new cars reached 3.3% year-on-year, the price of second-hand cars was as high as 29.7% year-on-year, and the car rental price was as high as 109.8% year-on-year.. U.S. auto sales and the rapid decline in inventories reflect the effect of the unblocking of the epidemic. It is expected that U.S. auto prices will continue to drive commodity inflation to a high level.

Among the service prices, residential rental prices will gradually rise, but the extent of their changes will not be very large, and US inflation will still structurally depend on commodity inflation.5The monthly rent of self-owned residences was 0.3% month-on-month, which rose after two consecutive months of flatness (0.1 percentage points), while the actual rents of major residential buildings continued to stabilize at 0.2% month-on-month, given that the combined weight of the two accounted for more than 30% of the CPI , And the continued upward trend of housing prices in the United States, it is expected that residential rental prices in the United States will gradually rise.

After the U.S. CPI data was released in May, the 10Y U.S. Treasury interest rate has declined, which seems to be inconsistent with the logic of rising inflation—the Federal Reserve’s QE Taper expectation.But we are in the early stage“QE Taper’s “Inception”-Comments on April FOMC Meeting Minutes” (2021.05.21)It pointed out that in the context of the Phillips paradox, the Fed should pay more attention to the risks of the financial market. In other words, neither the higher-than-expected inflation in May nor the non-agricultural employment data are the core indicators of the Fed’s decision-making.

So what caused the U.S. Treasury interest rate to fall? We believe that it is because the market is gradually recognizing the message behind the May CPI, that the US economic demand has fallen, and the market is revising its previous over-optimistic expectations of the US economy.But this does not mean that the 10Y U.S. Treasury yields will continue to decline. When the Fed really transmits the QE Taper message, the U.S. Treasury bond interest rates will continue to rise again.

From the perspective of inflation outlook, we tend to believe that high inflation in the United States will continue.But it is not based on optimistic expectations about the prospects of US demand, but as mentioned above, the US supply side may recover slowly. Especially from a long-term perspective, both the Internet bubble in 2001 and the financial crisis in 2008 have proved the permanence of unemployment in the US manufacturing industry. Therefore, even after the end of subsidies for “squeezing out production”, we will not hold on to the recovery of US production. Very optimistic. Therefore, we do not believe that US inflation is temporary.

Global macro data

This week’s high-frequency data: the number of non-agricultural job vacancies in the United States in April renewed innovationhigh

epidemic:The UK epidemic continues to rebound.

demand:US wholesale sales fell from the previous month in April.forGive employment:The number of non-agricultural job vacancies in the United States reached a new high in April.trading:Japan’s April merchandise exports rose sharply year-on-year.Inflation and commodities:The US May CPI continued to rise year-on-year.

real estate:The US MBA market index continued to fall.Monetary policy and exchange rate:The U.S. dollar index was at a low level, and the price of gold fell slightly.

Global Macro Calendar: Focus on US Retail Data

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The following is the text

Zhou view:Inflation in the U.S. has exceeded expectations, why is the yield of 10Y U.S. Treasuries falling?

In the second year after the outbreak of the new crown epidemic, the US CPI has basically returned to the level before the 2008 financial crisis. Is this the beginning of a new round of crisis or the beginning of a downward trend?

5The monthly U.S. CPI was 5.0% year-on-year, and the core CPI was 3.8% year-on-year, which exceeded market expectations. However, from a month-on-month perspective, both fell from the previous month, and the core CPI fell more than the overall CPI. Therefore, the market had long expected the month-on-month decline in CPI inflation. , And the point that exceeded expectations this time is mainly due to the limited decline in core products from the previous month.Core products were 6.5% year-on-year and 1.8% month-on-month, a slight decrease of 0.2 percentage points from April, while core services were 2.9% year-on-year and 0.4% month-on-month, a slight drop in temperature.

Inspired by the previous fiscal subsidies, it is mainly durable goods such as furniture that are driving commodity inflation. In May, the main driving force of U.S. commodity inflation shifted to car prices, but the overall core commodity prices were cooling down as subsidies gradually declined.1The rapid rise in US import prices shows that the recovery of domestic manufacturing capacity in the US is still relatively slow. Combined with the cooling of overall commodity inflation in the US, this indicates that this is mainly due to the decline in US commodity demand, not the result of the recovery of US industrial production. 2) In May, new car prices reached 3.3% year-on-year, second-hand car prices reached 29.7% year-on-year, and vehicle rental prices reached 109.8% year-on-year.U.S. auto sales and the rapid decline in inventories reflect the effect of the unblocking of the epidemic. It is expected that U.S. auto prices will continue to drive commodity inflation to a high level.

Among the service prices, residential rental prices will gradually rise, but the extent of their changes will not be very large, and US inflation will still structurally depend on commodity inflation.5The monthly rent of self-owned residences was 0.3% month-on-month, which rose (0.1%) after being flat for two consecutive months, while the actual rents of major residential buildings continued to stabilize at 0.2% from the previous month.In view of the fact that the combined weight of the two accounts for more than 30% of the CPI and the continued upward trend in US housing prices, it is expected that residential rental prices in the US will gradually rise.

After the U.S. CPI data was released in May, the 10Y U.S. Treasury interest rate has declined, which seems to be inconsistent with the logic of rising inflation—the Federal Reserve’s QE Taper expectation.But we are in the early stage“QETaper’s “Inception”-April FOMC Meeting Minutes Comments” (2021.05.21)It pointed out that in the context of the Phillips paradox, the Fed should pay more attention to the risks of the financial market. In other words, neither the higher-than-expected inflation in May nor the non-agricultural employment data are the core indicators of the Fed’s decision-making.

So what caused the U.S. Treasury interest rate to fall? We believe that it is because the market is gradually recognizing the message behind the May CPI, that the US economic demand has fallen, and the market is revising its previous over-optimistic expectations of the US economy.But this does not mean that the 10Y U.S. Treasury yield will continue to decline. When the Fed officially begins to send the QE Taper signal to the market, the U.S. Treasury bond interest rate will continue to rise again.

See also  Fed governor: there are risks in monetary policy, inflation and expected indicators will be carefully monitored_ 东方 Fortune.com

From the perspective of inflation outlook, we tend to believe that high inflation in the United States will continue, but this is not based on optimistic expectations about the outlook for US demand, but as mentioned above, the US supply side may recover slowly.Especially from a long-term perspective, both the Internet bubble in 2001 and the financial crisis in 2008 have proved the permanence of unemployment in the US manufacturing industry. Therefore, even after the end of subsidies for “squeezing out production”, we will not hold on to the recovery of US production. Very optimistic. Therefore, we do not believe that US inflation is temporary.

Global macro data: the number of non-agricultural job vacancies in the United States in April hit a new high

1.epidemic:The UK epidemic continues to rebound

This week, the number of new confirmed cases worldwide continued to decline, but the UK epidemic continued to rebound.The number of newly diagnosed cases in the UK continued to rise to more than 5,000 on average in the 7th day. As of June 8, the global new crown epidemic has confirmed more than 170 million cases, with a total of 3.75 million deaths and a total of 110 million recovered cases. Three days this week (June 7-June 9), the United States and the United Kingdom added 45,000 and 15,000 newly confirmed cases, respectively.

As of June 8, the world’s highest daily dose of new crown vaccination was in China, which reached 1.26 injections/100 people, the EU was 0.73 injections/100 people, and the United States was 0.32 injections/100 people. As of June 8, Israel has the highest proportion of fully vaccinated people in the world, reaching 59.4%, and the United States and the United Kingdom are respectively 42.0% and 41.8%.

2.Demand: US wholesale sales fell in April from the previous month

US wholesale sales rose sharply year-on-year in April.US wholesale sales in April rose sharply by 25.1 percentage points year-on-year to 43.6%, mainly due to the low base effect last year, which fell 3.4 percentage points from the previous month to 0.9%.

3.Supply and employment: the number of non-agricultural job vacancies in the United States in April hit a new high

The number of non-agricultural job vacancies in the United States in April hit a new high since the epidemic.The number of non-agricultural jobs in the United States in April increased sharply by 56.9 percentage points year-on-year to 100.6%, and the non-agricultural job vacancy rate reached 0.6%, an increase of 0.06 percentage points from the previous month, showing the squeeze-out effect of continued fiscal subsidies on employment.

The number of continuous claims for unemployment benefits in the United States dropped sharply that week.6The number of initial claims for unemployment benefits in the United States reached 376,000 in the week of May 5, a decrease of 9 million from the previous week; the number of people who continued to claim unemployment benefits in the week of May 29 reached 3.499 million, a sharp decrease of 258,000 from the previous week. However, the recovery is still slower than the level before the epidemic.

U.S. industrial materials production resumed.1) As of June 5, the U.S. crude steel capacity utilization rate rose slightly by 0.8 percentage points to 82.3% for the week, and crude steel production fell sharply by 3.8 percentage points year-on-year to 46.3%. 2) As of June 4, the utilization rate of the operating capacity of US refineries continued to rise sharply by 2.6 percentage points to 91.3%.

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4.trading:Japan’s April merchandise exports rose sharply year-on-year

U.S. imports and exports rose sharply year-on-year in April.U.S. exports increased by 28.5 percentage points year-on-year to 36.6% in April, and imports rose sharply by 16.6 percentage points year-on-year to 34.9%, mainly due to the low base effect in the same period last year, and the trade balance was US$68.90 billion.

Japan’s April merchandise exports rose sharply year-on-year.Japan’s April merchandise imports and exports rose 8.0 and 23.5 percentage points from the previous month to 11.4% and 36.9%, and the trade balance was 65.18 billion yen, showing that Japan’s trade was gradually recovering.

5.Inflation and commodities:U.S. May CPI continued to rise year-on-year

The US May CPI continued to rise year-on-year.5The month-on-month US CPI was 5.0% year-on-year, down 0.1 percentage point month-on-month to 0.6%, core CPI rose 0.8 percentage point year-on-year to 3.8%, and fell 0.2 percentage point month-on-month to 0.7%. The tear in US supply and demand continued to push inflation upward.

U.S. crude oil inventories continued to decline this week, and oil prices reached new highs.6EIA crude oil production rose slightly to 11 million barrels in the week of 4th, and US crude oil inventories continued to drop by 6.59 million barrels to 1100.5 million barrels. As of June 9, the weekly average price of oil distribution rose to 70.5 US dollars per barrel; the weekly average WTI crude oil price rose sharply to 69.2 US dollars per barrel, a new high since 2019.

6.real estate:U.S. MBA market index continues to fall

The interest rate of 30-year and 5-year mortgages in the United States has rebounded, and the interest rate of 15-year mortgages has remained stable.As of the week of June 3, the 30-year and 5-year mortgage interest rates rose 0.04 and 0.05 percentage points from the previous month to 2.99% and 2.64%, respectively, and the 15-year mortgage interest rate stabilized at 2.27%. As of the week of June 4, the US MBA market index continued to fall by 20.5 to 645.4, indicating that the housing market continued to decline.

7.Monetary policy and exchange rate:The dollar index is hovering low, and the price of goldSlightly down

The U.S. CPI has clearly risen, but the market may expect that the Fed will not respond to inflation for the time being. The US dollar index is hovering at a low around 90 this week, with a slight appreciation compared to last week, and the price of gold has fallen slightly.As of June 9, the dollar index closedIt closed at 90.1200, an increase of 0.2% from last week; the exchange rate of the euro and the pound against the US dollar (the pound exchange rate data as of the 8th) closed at 1.2174 and 1.4127, respectively, an increase of 0.1% and a depreciation of 0.2% from last week; the exchange rate of the US dollar against the Canadian dollar It closed at 1.2095, a 0.4% depreciation from last week.The average price of the London Golden Week fell slightly, with a year-on-year increase of 0.9pct to 11.1%.

Global macro calendar:Focus on U.S. retail data

The content is excerpted from the macro research report of Shenwan Hongyuan:

Inflation in the U.S. has exceeded expectations, why is the yield of 10Y U.S. Treasuries falling?——Global Macro Weekly · Issue 22

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