Inflation gets real
May 11, 2021
–Stocks are pushing a bit lower this morning, with inflation concerns popping up all of a sudden as an excuse. CPI is released this morning, expected 3.6% yoy with Core +2.3%. Auctions kick off with $58 billion in 3-year notes. I saw a clip this morning that put the inflation story into stark reality: McDonald’s may have to raise the price of a Big Mac. The Big Mac index is well known across the world for comparing currency levels, but I never realized how much variation there was in the US. I ran across this story from March, noting that a Big Mac costs $3.75 in Austin and $6.39 in Seattle, noting “one big [factor] is labor”. So perhaps we need a US BigMac index to measure labor price differences across the states. https://www.restaurantbusinessonline.com/financing/why-big-mac-costs-more-seattle-austin
–The curve continued to steepen yesterday with the five year note up 1.5 bps to 78.4, while tens rose 2.8 to 160.4 and thirties 4.7 to 232.1. The ten year tip breakeven hit a new high is 253.8.
–Large trade yesterday was a new buyer of 40k 2EM 9937.5/9918.75p 1×2 for 2.0. Settled 2.25 vs EDM3 9944.5. Midcurve May options expire Friday, but this was for June, and expires 11-June, in 31 days. Is one month enough to solidify expectations for two hikes by June of 2023? I think so. We get inflation data today and tomorrow, and a gaggle of Fed speakers that are going to play down price fears. All speaking on the topic of the Economic Outlook, we have Brainard at 12:00, Bostic at 1:15, Harker at 2:00 and Kashkari at 2:30.
