Closing Thoughts for the Week

The markets got several pieces of news this week that could end up being bearish for commodity prices, but welcome news for consumers. The agreement between Russia and Ukraine that would reopen the Black Sea grain delivery route is a very positive development that could begin easing a big source of inflation. Long-term U.S. Treasuries have gained more than 5% over just the past two weeks.

Something very interesting happened in the Treasury market last week. I think Treasuries reacted to the probability that a recession is now far more likely than not. I think what the inflation report did is effectively pull the rate hiking cycle forward. My biggest concern here is that there’s very little in terms of earnings downgrades or lowered expectations built into share prices here.

Labor market data took center stage and the results were, well, mixed. The 10-year yield traded in a range of 35 basis points, mostly trending higher throughout the week as the data leaned more hawkish. The Fed’s singular focus remains inflation and nothing that happened last week would serve to change that direction. I still think that deflationary pulse could pick up quickly.