U.S. Treasury yields fell to multi-month lows on Wednesday as traders balanced prospects for slower growth against inflationary pressures triggered by problems in commercial and economic supply chains around the world. .
Treasury yields, which move inversely to prices, have been in decline for much of the past four sessions on Wall Street, extending their downside after a second straight month of disappointing labor data that underscored the difficulty that major economies may have in bringing workers back to market. the labor market.
That corresponds to growth concerns related to supply chain disruptions in everything from commodities to food supplies to semiconductors. Germany, Europe’s largest and most influential economy, saw a drop in May industrial production this week as a result of those disruptions, even as order books remained bloated with post-pandemic demand that manufacturers were unable to meet.
Meanwhile, inflationary pressures continue to simmer, with China last month reporting the biggest rise in factory prices since 2008, setting the prospect for “imported inflation” in the coming months, while data more Recent JOLT job openings showed a record. 9.3 million job openings in the US job market, suggesting that employers will need to raise wages even beyond last month’s 2% increase to attract people back to the shop.
“The exact nature of these limitations remains a matter of debate,” said Ian Shepherdson of Pantheon Macroeconomics. “We are assuming that the extreme positions on both sides are wrong, and that a combination of factors, including the federal $ 300 per week increase in unemployment benefits, the fear of COVID, and childcare issues that are holding back the job offer “.
“By the end of the summer, however, these restrictions will be lowered enormously and the Fed will likely argue that rapid wage growth while employment is depressed is an aberration, brought on by temporary circumstances.”
Benchmark 10-year Treasury yields were 5 bases lower in yesterday’s session at 1,472%, the lowest since October last year, ahead of a $ 38 billion sale of notes later today. .
May CPI data at 8:30 am ET tomorrow will also show another decade-long pace of headline inflation, following April’s scorching 4.2% rate and the 1992 high of 3 , 1% for the Fed’s preferred indicator, the PCE price index. published earlier this month.
So far, the Fed’s “transitory” narrative has been widely accepted by Wall Street, and few if any questions about the fate of its $ 120 billion in monthly bond purchases have been put to the test.
However, the lower movement in yields has only marginally supported stock prices, with the S&P 500 rising 6.5 points and the Nasdaq rising 46 points in early trading on Wednesday, suggesting at least a weakening outlook. short-term growth.
“Inflation is a bigger problem for stocks when driven by supply rather than demand,” UBS equity strategist Keith Parker said in a client note Wednesday that steered investors toward more powerful companies. pricing, such as commodities, technology, and consumer discretionary. “However, we expect inflationary pressures to ease towards the end of the year as supply conditions ease and stifled demand eases, which should allow S&P 500 margins to continue to expand.”
Company bosses, however, are noticing that price pressures are already eroding earnings forecasts, and Campbell’s Soup CEO Mark Clouse noted Wednesday that rising inflation, combined with disruptions from supply chain, triggered a softer outlook for 2021 and disappointing third-quarter earnings.