June 8, 2021
Catalyst: May CPI is scheduled for release this Thursday. Year-over-year US CPI accelerated to +4.2% in April from +2.6% in March (both above 2.5%).
Check: From an equity perspective, the risk/reward is probably skewed to the upside as an above-consensus print seems likely to be dismissed as ‘transitory’, while an inline/lower number will be seen as evidence of diminishing pricing pressures. From a bond market perspective, a bigger CPI number would drive 10-year breakeven yields higher, but still fail to meaningfully lift nominal yields as they stay more closely aligned with Fed policy. The Fed has recently made labor market normalization a priority, which makes labor market data more important for nominal yields in the short-term than CPI or PCE.
Next: This morning’s release of April US JOLTs came in well above expectations with a record 9.286M job openings vs. consensus for 8.2M. The number, which exceeds estimates by more than 1M jobs, adds to mounting evidence that labor supply constraints were the cause of two consecutive monthly payroll disappointments. The labor market is probably much tighter than official BLS data suggests and the bias for real yields (nominal yields minus inflation) should be higher as a result. As the labor market improves this summer, expect higher nominal yields, curve steepening and further outperformance in cyclical/value equity sectors like Financials, Materials and Energy.