Yields Rising, Wages Growing

Macro Perspectives: Mon 11 Jan 2021

We talked last week about yields, as the spot to watch for the signal that the market is coming to the conclusion that, not just some inflation, but hot inflation is coming.

Here's the chart on the U.S. 10-year yield...

Rates are breaking out - up 21 basis points, just six days into the year.

This reflects a Democrat Congress and President with a plan to pour gasoline on a fire of global liquidity (through another stimulus package), which inturn reflects the expectations that inflation is coming down the line.

One of the missing pieces in the inflation puzzle of the post-Great Financial Crisis era was the lackof wage growth. That has changed.

Friday’s jobs report showed wages growing at 5.1% year-over-year (consensus was for 4.4%)...

This reflects demand for labor that's competing with a government paycheck. You have to pay them more to get them back to work. It reflects raises and bonuses that were given to essential employees at the depths of the health crisis. Not surprisingly, those pay increases are proving to be "sticky."

We've talked about this dynamic since the Fed went all-in back in March; we were looking at a reset of asset prices, we were looking at a reset of wages. We’re getting both.