Wages and Wagers
Demographics and demand for labour are reversing the multi-decade global wage trends resulting in hefty pay hikes & Labour hoarding - as the world ages, real rates, inflation & wage growth pick up.
BoE announced 4.0% pay raise for its 5,000-strong staff mainly on competition - Talk of pension age going to 70 & longer working hours in UK. Shunto ends on Mar 13 - hikes of 6.7% ? ). ECB recently singled out wages as the biggest risk. Indian bank staff have their moment.
Wages are probably not going back down but for a serious economic contraction that lasts for years - so the markets will have to continue to adapt to this higher inflation regime and higher for longer rates.
Central bankers have a long history of not quite matching actions with their words - this wage inflation is the excuse this year - Larry Summers says Fed is “way off” and decent chance of no rate cuts this year.
EURUSD left behind the 1.0900 hurdle - still -can be minor mean reversion - German real yields have risen by more than US - this week's core CPI release would settle the debate - so long 1.0970 holds, this up move may lose traction soon. Support at 10 dma at 1.0876- break would confirm.
Chinese CPI jumped into positive territory - first month of inflation after four months of deflation. PPI, though, fell into deeper deflation.
What difference does a week matter -
GBP/USD soared to an eight-month high at 1.2893- slower and lower BoE rate path has kept GBP broadly bid, propping up cable- rates alone don’t get you strong - growth to matter- stay aside.
Japan avoids technical recession on solid non-residential investment growth of 2.0%.
Jiji says BOJ will drop YCC at Mar 18 & 19 meeting -replace with advance information on amount of JGBs it plans to purchase. Jiji has got most of the stories wrong these days - don't be surprised if BOJ stands pat - Fri range 146.48-148.12 to stay intact till BOJ.
Lessening grip-likely to do with seeing the swap maturity through rather than any change of mind.