Weekly Economic Indicators, Nov 8
Last week's much higher than expected CPI rating caught the market off guard and caused a major selloff in the bond market. 10Y yields went from 1.41 to 1.55 in a single day, and 10Y breakevens are now above 2.7%. There's two ways to interpret this:
1. The market's positioning towards transitory over the past month was wrong
2. The market is right in it's positioning, but missed the impact of OPEC
Most prices are returning to normalized levels, but gas prices rose a staggering +12.3% month on month, which contributed to almost all of the CPI surprise. Over the past few months, OPEC has refused to increase supply, claiming that demand typically falls in Q4 and that they are well positioned. Oil prices could get worse before they get better. Although, this is a policy-caused bottleneck and being a politically sensitive asset class, it can be policy-eased. Similar to say lumber, this should get worked through over the next few months. Takeway: don't read too much into last month's CPI reading, but know that oil prices could get worse before they get better.
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