The title of my today Global Macro Insight was: Pedal to the Metal while Inflation and Transition Curves are arriving fast!!!
POWELL and BIDEN are racing on the hedge, just like driving a NASCAR, with 900HP on the rear wheels, on the ice…
POWELL is full easing and BIDEN is full spending. Today the US Q1 GDP reached +6.1% including a huge acceleration in consumption (+10.6%) and a drop in Inventories…
If you add what I mentioned in my Global Macro Insight :
“We have already talked about the rise in semiconductor prices, but especially the inflation that comes from Asia due to: the emergence of a middle class that accepts to pay higher prices, therefore allowing suppliers locals to raise their prices; a concentration of the main suppliers of consumer goods and electronic components in this area; the implosion of many Supply Chains, including those of semiconductors and containers, which will take time to resolve; the restart of Western economies with historically low inventories.”
Inflation will not be transitory. ZERO articles in the financial press regarding the GDP Deflator ( measures the changes in prices for all of the goods and services produced in an economy) = +4.3%
And the PCE Prices Advance reached +3.5%… just below a record high of 3.7% on Q3 2020…
Two solutions:
- The consumption welds the pedal to the metal during the Q2, with the corporate trying to rebuild their inventories = huge inflation in each supply chain upstream sectors and in raw materials.
- The consumption cools downs but corporates rebuilding their inventories = the same that the previous point but less critical
Conclusion: the US 10Y should reach 2% soon and long duration stocks (= TECHs) could have a little problem. If you add to these facts that the real opening of the real economy, pushing lemmings back to their offices, and ending the super-fast digital adoption, too many good things are definitively priced by the market…