U.S. CPI inflation jumped yet again in October, to 6.2% y/y, roughly matching the fastest clip since the mid-1980s. Core inflation was similarly strong, accelerating to 4.6% y/y, or the fastest since 1991. Aside from a hint of moderation, shorter-term momentum is hardly encouraging, with the 3-month annualized change registering at 3.8% (car prices are still surging), and the 6-month annualized change at 5.9%. And, for what its worth against a flexible inflation targeting mandate, annualized core inflation is now comfortably above 2% over the past 10, 5- and 3-year periods. Suffice it to say that this week’s key report didn’t do anything to dampen the possibility of faster QE tapering and earlier rate hikes next year. Markets, however, still don’t seem all that fussed. Ten-year Treasury yields backed up modestly on the week, but remain below the recent high set last month. Two-year yields, however, pushed new cycle highs.
So, where do we stand late in a year in which inflation has been a dominant story? Equity markets have continued to thrive in both Canada and the U.S., with the former ever so slightly outperforming as it tends to do in such an environment. Still, both the TSX and S&P 500 are up more than 24% in 2021. Energy has led the pack on both sides of the border with gains holding around 50% alongside strength in WTI. Banks have also prospered alongside higher long-term rates and a steeper yield curve. Technology continues to power ahead, posting gains slightly better than the broader index on both sides of the border. But, rate-sensitive utilities and defensives (e.g., consumer staples) have been the laggards.