Short Vs. Long Term Yields Rise

If the Fed won’t stop its chronic ZIRP’ing, maybe the market will do it for them.  Today the CPI (what most people think of as inflation) is indicated to have jumped per thisBloomberg report.

Equities fell earlier today as data showed the cost of living in the U.S. rose more than forecast, reflecting broad-based gains that signal inflation will move closer to the Fed’s goal. The consumer price index increased 0.4 percent, the biggest advance since February 2013, after climbing 0.3 percent the prior month.

“Probably the most troubling number for investors is the CPI number,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which oversees $65 billion in assets, said by phone. “Both numbers put those inflation readings around the Fed’s target policy of 2 percent. That to me suggests that the Fed, in looking at that, could say we run the risk of inflation being hot and could suggest pulling forward an increase of rates.”

Of course we have been viewing the ISM data (when ISM not screwing it up) every month and noting the pesky ‘prices’ component.  Of course CPI was going to get a bump.  The 2 year yield vs. the 10 year has made a 1.5 year high at least partially in response to price pressures.

This is by the way not a configuration that is friendly for gold.  At least that used to be the case before policy makers became so aggressive in meddling with the system.  Now, I wonder how many indicators are going to act exactly as they did before the steady diet of ZIRP, QE’s 1, 2 & 3 and all the other stunts being pulled in the US and around the globe.  But stand alone and at face value, short rates rising faster than long rates is not usually friendly for gold.

It may or may not be unfriendly to the stock market.  I think the market is going to stand or fall more on its own merits for a while, because it usually does not start to decline at the beginning of a rate hike cycles.  But again there too, what is “usually” about the current environment?