As we approach the fourth-quarter GDP report, expectations indicate that the US economy will experience a slower growth rate. However, a new nowcast suggests a slight uptick in the anticipated growth rate compared to earlier projections, signaling confidence in the economy’s ongoing expansion.
The US 10-year Treasury yield has been on the rise, reaching 4.79% on Monday, the highest level since early November 2023. According to Tony Crescenzi, an executive vice president at Pimco, “Bond investors are issuing a clear warning to global fiscal authorities to manage their budgets more effectively or face further repercussions.”
The US labor market displayed unexpected strength in December, adding more jobs than anticipated. This development fosters optimism about the labor market’s robustness in the foreseeable future. Despite the uncertainties posed by the incoming Trump administration, it can be stated that the new leadership inherits a labor market that is performing admirably.
China’s trade surplus increased significantly, reaching nearly $1 trillion in 2024. This surge, driven by robust exports, comes just as the US is set to adjust its import tariffs following the inauguration of President-elect Trump on January 20. The New York Times reports that “when accounting for inflation, China’s trade surplus last year greatly surpassed any levels seen worldwide over the past century, far exceeding those of notable exporting nations like Germany, Japan, or the United States. Chinese factories are achieving unprecedented dominance in global manufacturing, akin to the US after World War II.”
● The Corporation in the Twenty-First Century: Why (Almost) Everything We Are Told About Business Is Wrong
John Kay
Review via Financial Times
Historically, during periods when capital-intensive production dominated, the capitalist elite had enduring control over workers. However, this dynamic has shifted, as professional managers now hold power not from ownership but from their roles within the company. Hence, “the workers are the means of production” — a significant notion emphasized by Kay. Furthermore, he suggests that the traditional importance of capital should be reevaluated, proposing that modern business requires notably less capital than commonly accepted. While this may clash with the perspectives of existing business leaders, it’s hard to dispute that many initial public offerings primarily serve to enable founders to extract funds rather than to secure them.
Concerns regarding inflation are resurfacing, as previously discussed in my recent analyses. The bond market is reacting to these concerns by demanding higher yield premiums to cover the risks associated with possible increases in inflation. Investors are left to ponder whether the recent rise in Treasury yields is adequate given the current inflation expectations. As part of a new index initiative, CapitalSpectator.com has released its US 5-Year Yield Opportunity Index (YOI) to provide further insights.
In a bid to tackle deflation, China’s central bank has temporarily halted its purchases of government bonds. This move may indicate that the People’s Bank of China is signaling to markets that interest rates have fallen too swiftly. Peter Alexander, founder of Shanghai-based consulting firm Z-Ben Advisors, remarks on this strategy.
Inflation remains considerably lower than the volatile highs seen after the pandemic, when the annual rate of change for the Consumer Price Index (CPI) peaked at 9.0% in June 2022. Currently, inflation stands at a more moderate 2.7% as of this past November. However, its persistent nature has raised concerns, especially as potential changes in government policy with the upcoming Trump administration could exacerbate pressures on pricing. Consequently, the bond market is increasingly seeking higher yields to account for these inflation risks.
US jobless claims dropped to 201,000 last week, marking the lowest level in almost a year. This decrease in layoffs indicates a healthy job market outlook for the near term. Carl Weinberg, chief economist at High Frequency Economics, shares that “the Federal Reserve indicates that future rate cuts will be gradual.” The data suggests they do not need to rush to ease monetary conditions, as Fed policy aims to support both the economy and the job market before any potential recession occurs.
The risk of reflation has been a growing concern over the past months. Recent economic reports regarding price increases in the services sector have exacerbated these worries. The rising yield on US 10-year Treasuries suggests that the bond market is starting to take these inflation worries seriously.
