Bonds and the Dollar
May was the first time in 10 months that corporate bonds had a positive return. Previously, higher inflation led to belief in a more aggressive Fed and that resulted in higher yields (lower bond prices). In May, investors seemed to decide that investment grade bonds offered good value.
On Friday, the dollar rose. This was the result of higher inflation leading traders to believe that the Fed would continue to be very aggressive.
- Investors may be less fearful of recession (than they were a couple of months ago), some think inflation has peaked (or is close to peaking), and less supply also came to market (helping prices of existing bonds).
- A stronger dollar holds inflation down and makes imports cheaper. It also makes foreign earnings worth less.
- Gold settled at $1,875.50. Typically, gold would be hurt by a stronger dollar and higher yields, but the market is concerned by inflation.
Inflation is a global problem. The US is 48th out of 111 countries with the most current data available. Last June, we were 28th highest out of 116.
The Fed can’t solve supply chain problems, excess savings, or oil prices, so they have to hit demand. While we’re still seeing goods inflation, reports from places like Target that there is excess inventory tell us that this could slow in the future.
- Energy is up 34.6% YoY and groceries are up 11.9%
- The price of used cars and trucks rose 1.8% MoM, reversing three months of declines.
- Shelter costs were up 5.5% YoY.
- Airline fares are up 37.8% YoY, hotel prices are up 19.3%
- Restaurant prices rose 7.4%.
- Energy rose 3.9% in May (after declining in April) and 34.6% YoY
- Gas prices at the pump rose 4.1% MoM and 48.7% YoY.
- The food index rose 1.2% MoM (up from .9% in April) and 10.1% YoY (first double-digit increase since March 1981)
- Groceries rose 1.4% MoM and 11.9% YoY.
- Rents were up .6% MoM, the biggest monthly increase since 1987
- Barron’s Basics CPI, comprising YoY changes in foods like meat eggs, bread, milk, and produce, in addition to shelter, gas, and utilities is up 17% YoY and 2.5% MoM
- Active home listings have increased on a YoY basis for the fifth week in a row
- During the four weeks ending May 29, sellers dropped asking prices at the greatest rate since Oct. 2019
- New home sales dropped 16.6%
- Fannie Mae said that only 17% of people polled think that it’s a good time to buy – the lowest share on record
- Commercial property sales were $39.4B in April, down 16% YoY
Dollar’s Climb Stalls Amid Mixed Economic Signals
Gold ends higher Friday, books strong weekly gain as investors head for havens after hot U.S. inflation repo
U.S. Inflation Hit 8.6% in May
Inflation Climbed More Than Expected. The Fed’s Job Isn’t Over Yet.
Gasoline, Groceries and Housing Drove Inflation in May
A Break in Inflation Is on the Way, but It’s the Wrong Break