The bond markets now wait for further direction. The initial move in bonds was driven by inflation expectations, but to be honest that could well reflect the underestimation of inflation by markets as much as an anticipation of Trump induced inflation.

The markets still have a very conservative view of inflation given that most prices are rising somewhere between 2 and 2.5 percent a year.

Investors could do well keeping in mind that Trump inflation is a late 2017 issue, existing labor market tightness is an inflation issue today, but perhaps the Trump plans have refocused investor attention onto the inflation story.

U.S. producer price inflation (PPI) is due today.

The U.S. inflation and stimulus concerns do not go away entirely and there is the potential for a further bout of bond weakness if these fears are once again emphasized.

The next driver in this area is likely to be the announcement of the nominee for U.S. Treasury Secretary.

Someone regarded as a fiscal expansionist may induce a further wave of concerns in markets about the inflation consequences of massively adding money into an economy with little to no spare capacity. Speculation about this position has reached a heightened level and no doubt, many in the markets will be anxiously waiting for the official news release.

Besides all that, and before Fed Chair Ms. Yellen delivers tomorrow, November 17, her testimony on the U.S. economic outlook before the Joint Economic Committee of Congress we got this morning in London, UK, St. Louis Fed President James Bullard discussing at a conference “U.S. Monetary Policy in the Aftermath of the U.S. Presidential Election” saying:

• “The market expectation had been for continued divided government, and the election outcome was accordingly surprising … However, the volatility in key U.S. macroeconomic variables has been in line with the volatility observed during the past year.”
• “The near-term St. Louis Fed forecast remains unchanged as of today … our outlook for monetary policy is also unchanged.”
• “A single policy rate increase, possibly in December, may be sufficient to move monetary policy to a neutral setting.”
• “Tax reform that allows repatriation of corporate profits earned abroad may enhance investment in the U.S.”
• “The results of the election now suggest that the period of regulatory expansion has come to an end … Regulation is a large area affecting many businesses. To the extent that there has been counterproductive regulation, its partial rollback may be beneficial for U.S. productivity and hence for economic growth.”
• “Trade arrangements can have important macroeconomic effects, but over the longer term … Similarly, immigration reform would likely have important effects on the macroeconomy, but perhaps over a longer horizon.” 

Yes, some interesting food for thought from Mr. Bullard.

Meanwhile in China, Premier Li Keqiang has said that China will in fact will meet its full year economic targets. Markets’ surprise at this news is perhaps tempered by the fact that China always meets its full year economic target except when it beats its full year economic target, which is a fairly frequent occurrence.

The question is whether the Chinese full year economic targets represent sustainable economic growth. And the answer to that is probably… no.

The Chinese economy can grow at an unsustainable pace for some time, but this is really not what China’s present trend rate of growth looks like.

Today, the data show that UK unemployment declined 0.1 percent in October, which hereby confirms the UK labor market has not been suffering from widespread job losses as a result of uncertainty about the exit of the EU. However, what the UK has seen, is some move towards contract work and other flexible working practices to allow more room to maneuver in the uncertain times ahead.

Yesterday’s UK inflation data showed strong inflation pressures building as a result of the decline in sterling, but not at consumer level but at producer price (PPI) level.

The PPI rise has not been passed onto the consumer yet, but the resulting squeeze on corporate profitability may encourage firms to look for labor efficiency as labor is typically the largest cost that a firm faces. The lack of pricing power is not universal of course, as most companies sell to other companies. It is the companies that are nearest to the end-consumer that have the greatest incentive to seek to impose cost controls.

From the EU we have the budget assessments today that is not an especially market moving event were it not that Italy has threatened to veto the EU budget, which is another signal of the present fractured state of European politics. Yes, trouble is brewing in the EU, no doubt about that.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.