Inflation/Rate Hike Probabilities Were Never High To Begin With, And Now, Despite CPI & Labor Shortage, They Are Even Less

Except, no, it’s been the exact other way since early April:

Going back to that point, eurodollar futures have instead joined the Treasury market in anti-reflationary behavior. Properly placed into the context of nominal indications as well as history, more appropriately interpreting these markets leaves you wondering if all these people are looking at the same markets.

Despite the CPI – as well as, described earlier today, the growing assurance of yet another labor shortage (even though the last one turned out to be fake) which will, supposedly, contribute a huge amount to inflation – more and more these markets are turning their back on any sort of inflationary probabilities at any levels. Doesn’t matter the economic or consumer price data today, the uniform picture across the entire “bond market” going back to, oh, Feb 24-25-26 is to look right past all of it.

And, just to be clear, the curves were unequivocal even during their reflationary selloff (January thru March) that any probabilities of inflation running tepid let alone hot never got all that high to begin with. As I wrote at the end of March, just as that reflationary run was running out:

This December 2024 position is basically saying the first half of the decade of the 2020’s will somehow, on average, be materially worse than the 2010’s even if slightly better than the single and singly awful year 2020 had been where inflation and economic growth is concerned.

But that’s not the message you see all over the internet despite it being right here in the right market.

A little bit better than last year just doesn’t have the same ring to it, especially in light of the desperation to paint early 2021 as somehow different from all prior post-2008 circumstances. That’s all the curves have said even up to and including April 5’s price trough/near-term reflation peak.

And today, despite the out-of-this-world inflation numbers along with JOLTS Job Openings as apparent confirmation of massive labor shortage pressures, the eurodollar futures curve like the Treasury yield curve is “somehow” pricing even lower probabilities of higher rates all over again – as if the CPI didn’t really mean much or anything beyond early 2021.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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