Inflationary pressures still rising

NFIB business price plans and China PPI up sharply

Chart of the Day

The NFIB small business survey showed price plans rose further in October. At this level they are not necessarily consistent with core inflation rising further, though they clearly suggest it will remain very high compared to the pre-Covid experience. Longer-term bond yields continued to decline yesterday despite this development, which some suggest is because investors believe recent hawkish moves by central banks will prove to be a policy mistake and will bring both growth and inflation down sharply.

Macro

US NFIB small business confidence fell by 0.9 points to 98.2 in October.

US producer price inflation was little changed to 8.6% in October, while core PPI inflation fell to 6.7%.

German export growth fell to 7.3% YoY in September, due to a 0.7% MoM fall. Export orders look stronger, but supply problems are preventing exporters from meeting those orders.

Producer price inflation rose sharply to 13.5% in October, another concerning sign that there are still further inflationary pressures to come for advanced economies.

Markets

Across advanced economies, yields generally fell yesterday despite signs of continued high inflation.

With 30-year yields falling either further, the 30-10y yield curves have flattened sharply across most ceconomies. The UK curve is almost close to inverting - not normally a vote of confidence.

For the US, the fall in 10-year yields has been entirely due to lower real yields, which has helped some equities perform.

Lower bond yields have not been good news for financials though, which have lagged other sectors.

Tesla continues to slump following Musk’s twitter poll that suggests he will sell a large share of his holdings.

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