Morning Report: Quits rate signals wage inflation ahead.

Vital Statistics:

 LastChange
S&P futures4,69314.2
Oil (WTI)79.72-1.03
10 year government bond yield 1.58%
30 year fixed rate mortgage 3.27%

Stocks are higher this morning on no real news. Bonds and MBS are flat.

The upcoming week won’t have much in the way of market-moving data, although we will get some important housing data with housing starts and the NAHB Housing Market Index. The biggest day for non-housing data will be tomorrow when we get retail sales and industrial production.

Mohammed El-Arian says the Fed has a credibility problem when it comes to inflation. “I think the Fed is losing credibility,” El-Erian said Monday. “I’ve argued that it is really important to reestablish a credible voice on inflation and this has massive institutional, political and social implications….We are in this transition of central banks mischaracterizing inflation. The repeated narrative: ‘It is transitory, it is transitory, it is transitory.’ It is not transitory,” El-Erian said, warning the Fed risked making a major policy mistake….We have ample evidence that there are behavioral changes going on….Companies are charging higher prices [and] there’s more to come. Supply disruptions are lasting for a lot longer than anybody anticipated. Consumers are advancing purchases in order to avoid problems down the road — that of course puts pressure on inflation. And then wage behaviors are changing.”

The Atlanta Fed’s GDP Now estimate has fourth quarter GDP accelerating to 8.2%. Much of this will hinge on consumer spending for the holidays and whether supply chain issues work themselves out.

There were 10.4 million job openings at the end of September, according to the JOLTS jobs report. The quits rate, which tends to lead wage growth, rose to a series high of 3%. This will alarm the Fed as we have the pieces in place for a wage-price spiral.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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