Yesterday was the inverse of the preceding day.  Value out performed growth perhaps the result of consumer confidence data and the greatest jump in housing prices in more than three decades.  Most people gauge their financial well being by the value of their home and as noted many times values are rising significantly in secondary and tertiary markets.

Commenting about consumer confidence, confidence is at a post pandemic high, exceeding expectations, primarily the result of jobs.  The share of consumers that said jobs are plentiful increased to a 21 year high of 54.4%.  The closely watched labor differential also improved.  The share of respondents who said jobs were plentiful exceeded the share of these who said they were hard to get by the most since 2000.

The above data correlates to a strong economy for large spending decisions are typically predicated upon rising home values, decisions that are reinforced by confidence of continued employment.

The battle lines are now fully drawn.  Sentiment indicators, the vast majority of analysts, and the data are all strongly arguing inflation is not transitory.  The Federal Reserve and Wall Street believe otherwise.

Friday is the release of June’s unemployment data.  Considerable attention will be focused on wage gains and the labor participation rate (LPR).

The Federal Reserve is adamant that once enhanced unemployment benefits expire, there will be a massive influx of workers.  The issue at hand however is that once increased labor costs become embedded, it takes time for these costs to work its way through the system.  Many asking why is this time different?

Changing topics, as noted the other day ESG bond origination is surging.  Sustainability Linked Bonds (SLBs) is a type of ESG debt that helps companies become better corporate citizens and penalize firms with higher borrowing costs if they don’t meet certain environmental, social and governance metrics.  SLB origination is becoming the latest rage in the US.

Unlike traditional sustainable notes that finance specific projects, SLBs are financing vehicles that help companies obtain the subjective diversity/inclusivity targets, targets that are hard to quantify financially.

SLBs typically demand a higher interest rate and command greater origination costs and fees than sustainable notes that are already 2x to 4x more expensive to originate than traditional corporate debt.  The largest issuer to date is BlackRock as per Bloomberg.

I cynically ask where is the mention of the financial viability of such debt.  Is the underwriting flawed?  Unfortunately, only history will answer this question.

What will happen today?

Last night the foreign markets were down.  London was down 0.66%, Paris down 0.84% and Frankfurt down 1.02%.  China was up 0.50%, Japan down 0.07%   and Hang Seng down 0.57%.

The Dow should open nominally lower ahead of the upcoming labor data, fears of another COVID strain and general anxiety over where the direction the Administration is pushing the economy. The 10-year is up 5/32 to yield 1.45%.


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