Recap 9-14-12: Inflation Fears are Back


Amidst the QE euphoria, note that inflation expectations have jumped sharply. 10y breakevens (blue) are now well above 2.5%, and close to levels which have historically been dangerous for stocks:

Expect to hear about stagflation again in the near future. I still think there is still a decent chance that we saw a short term top this week.


  • US Retail Sales rose 0.9% MoM in Aug vs 0.8% exp and prev on the back of strength in autos. The control group was weak at -0.1% vs +0.4% exp and 0.9% prev.
  • WSJ: In a survey of 887 chief financial officers by Duke University and CFO magazine, 91% of respondents said they wouldn’t change their investment plans even if interest rates dropped by a full percentage point.
  • Citi Survey: About half the respondents believe that the "Fiscal Cliff" debate was primarily a Q4 2012 event, while 37% believe that it is a Q1 2013 event
  • Japan’s finance minister said the yen’s climb has been “one-sided” and “clearly” out of line with Japan’s economic situation. “This sort of movement is something I can’t overlook. I will not rule out any measures and I will take decisive steps when it is deemed necessary. This is the stance I will continue to maintain.”

Upcoming Data:

  • Mon: US Empire Mfg, RBA Minutes
  • Tues: UK CPI, German Zew, NAHB Housing Index, Dudley Speaks
  • Wed: BoJ, BoE Minutes, US Housing Starts, Existing Home Sales
  • Thu: EU PMI, US Jobless Claims