The Chinese inflation hit a 13-month high in October, and the producer prices topped 13%. And later today, the US inflation data will likely confirm a further overheating in American consumer prices last month, as well.
A consensus of analyst estimates points that the consumer price index in the US may have advanced to 5.8% in October from 5.4% printed a month earlier. The positive trend in inflation is a bit too dynamic to call it ‘transitory’, and we don’t even know when it will stabilize. The banks stopped giving that call long ago, and now, come what may!
But the interesting thing is that, the Federal Reserve (Fed) doves still find a way to remain in charge of the market. The latest news that Lael Brainard went for a job interview to the White House to become the next Fed Chair is giving the Fed doves a decent boost presently, as Brainard is seen as a more dovish candidate than Jerome Powell.
But what can she do? She can’t stop the QE tapering, she can’t pull the interest rates lower, and she can’t even push back the rate hike expectations with inflation rising at such speed.
One thing is sure, the rising inflation doesn’t seem to sour the market mood as much as it did a couple of months earlier, as investors are well conscious that the Fed will continue turning a blind eye on the problem, regardless of who will take the helm in February. Therefore, we may not see a negative market reaction to the overheating in inflation.
It’s also important to note that real yields are under a decent pressure and the low risk, low yielding assets are now increasingly negative yielding when adjusted to inflation. The negative real yields make the equity markets look like the only alternative to deal with the rising inflation, other than the cryptos, of course!
