16 August 2017 by pdonnat
Consumers are not like investors. They are not rushing to buy as soon as there is a sale. Even a fire sale does not move them. They are not expecting any inflation soon. This is one of the FED issues of low inflation expectation and low wage growth. In their minutes released today, FED members are pointing out - to explain the lack of prices responsiveness - “restraints on pricing power from global developments and from innovations to business models spurred by advances in technology” . JCP (J.C. Penney Company, Inc. Ltd) released its quarterly results last Friday. The stock and the credit default swap have been slaughtered since the release. The CDS is 200bps wider at 900 bps running and the equity price is down 30% over the last week. JCP with around 875 stores left is trying to stop the desertification of shopping malls. But the wave of consumers using internet is unstoppable. All the retailers have their backs against the wall. They will fight to the death and prices is their only variable left. Inflation should not pick up rapidly.
Meanwhile, the credit index market was busy with the August option expiry. The daily tightening was floored in Europe at 55 bps. Dealers are expecting now a quieter end of month. All eyes are starting to focus on the next September roll for indices and single names.