Deflation – making sure it doesn’t happen here (in Beijing)
July 10, 2023
–The title is from Bernanke’s famous 2002 speech. Maybe it’s worth a review by the new PBOC chief, Pan.
By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.
China’s CPI was 0.0% yoy and Factory gate prices for June fell for the 9th consecutive month, marking the steepest decline since December 2015. (PPI -5.4% yoy)
–In the US, CPI is released Wednesday (expected 3.0 to 3.1%), and there are Fed speakers lined up for the next few days. Today, Barr on bank capital rules, then Daly, Mester and Bostic, starting at 11:00 EST. Tomorrow Barkin and Kashkari. Treasury auctions 3s, 10s and 30s starting tomorrow. Consumer Credit today.
–Friday’s employment report was softer than expected with NFP 209k and the previous two months revised down by 110k. Avg Hourly Earnings were +4.4% yoy, higher than expected.
–SOFR curve steepened with reds +6.375, greens +2.125 and blues -1.25. Similarly, the 2y yield dropped 7.3 bps t0 4.93% while 30s rose 2.8 to 4.03%. Current (Monday 6:30 ET) 30y yield is 4.06%, the highest since last November. Tens are 4.068, also through all highs since November; the pre-SVB high in March was 4.059.
