From Michala Marcusen on the top topics from the week ahead:
MORE CONFIDENCE AND MORE JOBS IN THE US The May employment report takes centre stage this week and our US data expert Brian Jones is calling for a 210K increase on non-fall payrolls, well above consensus of 165K. Combined with our call for 52 on the June manufacturing ISM, this will keep the QE exit debate very much alive and support our call that asset purchases will be tapered in the autumn.
MARKET ISSUES: Our call for the 10-year US Treasury yield to head to 2.75% by yearend no longer seems extreme as discussed in detail in the US Focus this week. Moreover, medium-term we continue to see the 10-year back at 5% by 2017. A FAQ in this context is just how high yields can go before endangering the recovery. Of course, the path matters and disorderly market movements would have negative feed-loops to the real economy. Assuming the path is relatively smooth, however, we see no major issue with the 10-year normalising back to 5% by 2017 as highlighted in The end of household deleveraging.
A 2.75% yield on the 10-year isn't really so high, but it does get us back to where things were in early 2011.
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