Inflation: Yields Up Assets Up

Macro Perspectives: Mon 8 Mar 2021

The Senate got through the $1.9 trillion spending package over the weekend. With that outlook, unsurprisingly, stocks reversed course before the end of the week from the draw downs on Friday morning.

We've talked about the dangerous inflation that is brewing under the expectations that another additional $1.9 trillion will be poured onto an economy that is already projected to run at least three times faster than pre-Pandemic levels.

We continue to have more evidence that the hot economic recovery is already underway, thanks to the over $3 trillion of aid and stimulus rolled out last year - Friday’s jobs number from February came in hot - twice what economists expected with average hourly weekly earnings were up almost 6% compared to the February of last year (pre-Pandemic).

These numbers are coming with parts of the U.S. still burdened by varying levels of government imposed constraints on their respective economies. Any subjective economist would tell you the economy does not need another penny of stimulus, especially given that the constraints are being lifted.

But it's coming, and that's why yields have been running UP, and asset prices have been running UP.

So what happens when that next tranche of money gets the official stamp from Congress?

We may find that foreign investors start voting on our policy decisions on Capitol Hill, with their feet. That would mean, exiting the bond market, and selling the dollar. This weaker dollar scenario is the typical and rational counter-balance to the rise in global commodities prices (which are mostly priced and traded in dollars).

With that, this will be the chart to watch next week...