Stocks, Treasuries, and Yen; Toward Understanding the Big-Picture

Rising inflation is not always negative for stock markets especially when the prospect is improving and other asset classes look more risky.

Last week showed that the CPI increased in Europe and North America but the possibility of a dipper slowdown in global economy noticeably eased concerns about the future of inflation. It may explain why equity indexes climbed, yields on Treasuries fell, gold and oil prices dropped and even carry-trading somewhat resumed.

Market sees the Fed less worried about inflation

Treasuries gained in the week that CPI rose 0.8 percent in July, the "fastest pace in 17 years". Even an unexpected rise in Industrial Production doesn't changed the view that the Fed expect that the slow growth could contain inflation. Futures contracts show that there is less than 25 percent chance for an interest rate rise by the end of the year.

• Fed's Stern expects that "the U.S. economy will probably continue on a path of slow growth, with unemployment rising and inflation easing", Bloomberg said.
• In another report, Chicago Fed President Charles Evans said the second half "likely be extremely sluggish" and inflation should ease "over the medium term".
• Dennis Lockhart, Federal Reserve Bank of Atlanta President, who is not a voting member until the next year, views "the current situation as reasonably balanced, with a great deal of uncertainty around both the downsides to growth and upsides to inflation".