"At the end of January, the markets were set for a perfect storm. A decades-long trend of falling interest rates and falling inflation – and inflation expectations – seemed to have ended, as the 10-year U.S. government bond yield broke the downward trend since 1987," says chief strategist at Sparinvest David Bakkegaard Karsbøl in his monthly comment for February.
Interest rates went up to the trend line at the end of the month several times but although the macroeconomic figures were good, none of them were solid enough to send interest rates up enough to break through the trend line.
However, this all changed on February 2nd when we obtained the U.S. labor market’s key figures. These were generally good, but one thing in particular stuck out: the annual growth in the American hourly wage. For years after the crisis, wage inflation was low despite a steadily tightening labor market. Several analysts declared that the so-called "Philips curve" (the usually negative correlation between unemployment and wage inflation) was dead but the latest figures seem to show that it has arisen from almost a decade of slumber.
With an annual wage increase of 2.9 percent, where analysts only expected 2.6 percent (and where the previous month's wage increase was even upwardly revised), it can now no longer be claimed that wage inflation is dead. This good key figure was the trigger for the U.S. 10-year interest rate eruption. Over a couple of days, the interest rate rose by 0.1 percentage points. Generally speaking, this is not unusual. What is unusual, though, was the breach of the downward trend line that has existed since 1987, and that the stock market also had a nervous eye on.
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