Energy and food prices are pulling inflation rates higher, as central banks refuse to raise interest rates whilst labor force markets to remain depressed. There is a growing concern about rising consumer prices, but the central planners still believe that inflation will drop as supply chain disruptions are resolved. The worry is that there is another wave of coronavirus.
Germany's inflation rate, measured by the year-on-year change in the consumer price index (CPI), was 4.5% in October 2021. The inflation rate had been 4.1% in September 2021. The last time it was higher was in August 1993 (+4.6%). A higher inflation rate was last measured in August 1993 (+4.6%).
According to the Federal Statistical Office (Destatis), consumer prices rose by 0.5% in September 2021. Germany and France are experiencing a COVID-19 outbreak again, which will worry the authorities. In Germany, the rate of Coronavirus infections per 100,000 people rose to a record high. In France, the number of infections reached a two-month high. Supply disruptions due to COVID-19 have been a major factor in the rising inflation across Europe. That and energy prices.
The EURGBP is holding above the key 0.8500 level and on rising inflation, the markets will be expecting the ECB to react with monetary policy including interest rates at some point. Though this price action probably reflects the negative sentiment around the UK currently.
Bondholders are increasingly willing to accept lower interest rates on the market for US Treasury securities. Despite rising inflation expectations and falling nominal rates, real yields on US government securities have dropped even lower ahead of today's consumer price index release. A measure of real yield for 30-year inflation-protected securities has dropped to a record low of around -0.5%.
Last night's 10-year Treasury Note auction was disappointing with all participants showing either less need for the benchmark Treasury Notes or simply a lack of demand as the bid-to-cover ratio dropped below the 6-auction average. The run-up to the recent highs in the bond market may have had a lot to do with the lackluster auction as the Reverse Repo markets still remain highly used with over $1.3 trillion of Treasuries lent out by the Fed overnight. Lower yields and higher bonds have tended to be signals of a market-moving out of risk assets into safe havens. This usually has implications for stock markets and precious metals too.
As TLT found resistance once again at the range highs, frustratingly so did the price of gold. Which has now clearly tested the same level 4 times.
In China, the inflation rate soared to its highest level since September 2020. October's CPI reading came in at 1.5% year-over-year and as expected for a month-over-month increase. After some negative rhetoric between the US and China, Chinese President Xi today said China is ready to work with the US on regional and international matters.
The main event for today will be the release of US CPI data this afternoon from the US session. The US Unemployment Claims and Crude Oil inventories could also push the Brent and WTI contracts higher if there is another draw in stocks, as we saw with the US Private Energy Inventories yesterday. Yesterday Brent popped out of the Bull Flag chart pattern and could now be back on its way towards $90 per barrel.
The US dollar index has been a range above the Ichimoku cloud and below $94.50 for some time now, so traders will be looking for a range extension following today’s CPI data.