why: Emplyment rising–>interest rate dropping Producer price index rising–> interest rate dropping ?
I have no idea as thinking back to economics classes at Uni I think the question would have to do something with something called the Phillip’s curve effect…Which is if unemployment decreases then inflation rate goes up-vice versa. So I think the question may be wrong, as if employment goes up (unemployment down) then inflation goes up. When inflation goes up then Monetary policy kicks in and pushes interest rates up. …
If trading bonds were as simple as selling when price indices went up or buying when unemployment was rising, everyone would do it. A lot to consider: flight to quality, index buying (was everyone short and forced to lengthen duration to match index), are people buying tsys against selling credit/mbs, is there another wave of bank writedowns forcing more worry, will we see a collapse in commodity prices which would alleviate inflation pressure, or maybe very simply, neither inflation nor employment are a leading indicator. most “leading” of employment data is initial claims (though not most heavily weighted as many). Look at that, 4wk moving avg up from about 310k to 342k, highest in last yr. Continuing claims up from 2550 kind of level to over 2700. Those are pretty bullish for bonds.
Those relationships make sense, but not sure of the actual question. * Falling interest rates are theoretically supposed to increase borrowing and corporate spending, thus creating the need for corporations to bring on new staff (unless current employees become more effcient). * Interest rates dropping will also lead to more borrowing, more spending, more dollars - chasing the same quantity of inputs needed in production, thus increasing the PPI.