| I am not a macro-expert but I follow several who I consider are. The view seems to be right now this macro environment is very similar to what we had during 1940s, where we had persistent (with fluctuations but upward trend) inflations due to fiscal spendings (war in 1940s vs Covid this time). By this theory, this is just a “pause” before inflation sticks again and shows a persistent outlook. BoE already acknowledged this. Part of the issue is of course war in Europe causing energy and manufacturing crisis in EU that countries like Germany hasn’t recovered from and there is not much hope it will in near future. The other part is persistent fiscal spending, a big part of which is driven by debt servicing due to rising interest rate causing some kind of vicious cycle. If you follow Fed speak, they are also more using cautious words like “pause” and not saying we are out of the woods yet. Market is of course forward looking, bond market thinks there is not much Fed can go before breaking something as you can see in the spread of interest rate between 10Y vs 2/3Y. I don’t think anyone really knows but Wage growth is persistent and productivity is clearly down. I bet the market will look much gloomier once the Q2 numbers start coming out and show margins are clearly down. |