Daily Brief - The market and 6.2% inflation (Nov 11, 2021)

You’ve seen the news. Inflation hit a peak of 6.2%, the Biden administration swore that fighting it is its first priority and markets...could not care much.

Musk selling out a lot of TSLA made way more waves, and the bond market barely moved with a 12 basis point* rise in the yield of the UST 10s** which you can check out here https://toggle.ai/analyze/sov_us_usd_10y.

So here’s the full chart. Admittedly that’s a big rebound. Should we be worried?

In short, there are reasons not to freak out.

Inflation reacts to changes in growth: when growth rebounds from a low level the “growth impulse” lifts inflation.

Why does this happen, you ask? The traditional response is that supply chains are slow to adjust. If last year they cut capacity, this year they can’t cope with high-growth demand - and so they raise prices.

So we still think there’s hope for inflation to calm down, Central Banks to relax, and everybody to enjoy the bull market for a while longer.

Fixed income jargon 101

* 12 basis point means 0.12% - in this case the yield moved from 1.4320% to 1.5580%

** UST means US Treasuries i.e. the government bonds and 10s refers to the bonds with 10 year of maturity.