10Yr & 30Yr Yield Curves

Inflation Rising

Inflation rising was the theme this week in the markets as CPI & PPI data (see more below) rose sharply indicating inflation is in the pipeline. As the economy emerges from the pandemic not everything is opening at the same pace. This choppy opening means there are shortages and price spikes as demand and supply try to find equilibrium. This week, there was finally evidence in the data which caused a hiccup in the equity market.

However, the S&P 500 was already in short-term overbought area this week as evidenced by the RSI indicator at the bottom of this chart. The pullback also fit very nicely into a 38.2% pullback from the March 5th low which is common in a correction within an uptrend. The rebound on Friday was enough that the odds are good that the inflation scare was just a dip and that the S&P 500 should continue higher next week. If I am wrong and there is another leg lower, than the 50% pullback level at 3976 would complete a three-wave correction.

Chart of the S&P 500 Futures

Interest rates are the best truth tellers when it comes to growth and inflation. In the charts below, I have the 10Yr & 30Yr Treasury yields which look very similar. Both spiked on the inflation data this week but as you can see they stayed within their respective ranges developed over the past several weeks. I would have expected to see bond yields blow through the top of their ranges if the market was pricing in sustained inflation – didn’t happen. I think the inflation readings will be scrutinized for the rest of the year but for now it was another data point validating that demand is returning as we close this chapter of the pandemic.

10 and 30 year Treasury Yields

Chart of the Week!

Mapping Interest Rates

Economic & Central Banking Snippets 

Filing for jobless benefits.
  • Jobless claims continued to trend lower as workers return to the labor market. Worker applications for unemployment benefits fell to 473,000 last week from a revised 507,000 a week earlier. Claims remain above pre-pandemic levels but are now at the lowest point since mid-March 2020. (WSJ)
  • The number of job openings in March exceeded 8mm for the very first time at 8.12mm.
U.S. Producer Prices
  • The U.S. producer-price index jumped 6.2% from a year earlier – the strongest gain on record since 2010. (WSJ)
  • The April PPI (Producer Price Index) jumped 0.6% m/o/m, double the estimate and comes after a 1% rise in March. The core rate was higher by 0.7% vs the estimate of a 0.4% increase.
  • Consumer prices surged in April by the most in any 12-month period since 2008. The Labor Department reported its consumer-price index jumped 4.2% in April from a year earlier, up from 2.6% for the year ended in March. (WSJ)
  • Soaring demand and limited inventory sent the median price of a single-family home in the U.S. to record highs in Q1. According to the National Association of Realtors (NAR), prices rose 16.2% from last year, the biggest increase since 1989. The median price of $319,200 was also an all-time high.
  • The European Commission upgraded its GDP growth rate forecast to 4.2% for the EU in 2021. Tourism revenue is improving economic prospects as Greece opens to visitors this Friday and then Belgium in June.

Macro Snippets

Market Cap of all Crypto Currencies
  • On the hunt for tax cheats, Uncle Sam is winning court battles to force cryptocurrency exchanges to reveal their customers. Your big unreported profits on bitcoin, ether or dogecoin could translate into big problems with the IRS. (WSJ)
  • Ford announced it has launched the technology to make significant remote upgrades to its cars and trucks. This technology would collect data on millions of customers, giving Ford access to new potential streams of revenue. Ford is calling its new over-the-air update capability “Power-Up,”. (Investopedia)
  • Airbnb reported more than $10 billion in bookings as revenue recovers from the pandemic which devastated the travel industry. (WSJ)
  • Oatly Group AB expects to raise as much as $1.65 billion in an initial public offering. This will give the producer of plant-based food and drink products a valuation of over $10B. Oprah Winfrey, Natalie Portman and Jay-Z are all early investors in the company. 

That is all for now and thank you for being a subscriber!

Paul J. McCarthy III


Paul J. McCarthy, III

President – Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.