Good afternoon … I’ve cobbled together a few links (below) as well as some observations from the sellside (HERE) to help you nod off on the hammock, at the beach, in between innings (of baseball tournaments or games) or dance recitals.
Consider THISfiller as we collectively wait for Dr. Lacy Hunts Q2 missive (although you’ll find a few links / tweets from EPBMacro’s Eric Basmajian — thank me later, follow him on twitter and subscribe to his work if/when you can!)
ISM SLUMPED, new orders & jobs contract (ZH with a recap OF Markit PMI release HERE). Construction Spending (GDP input) also UNEXPECTEDLYdecreased 0.1% (CR)
Can’t wait to see / read IF TDs short 2s was stopped in Friday’s follies…What follies, you ask? (I know you didn’t but how else could I insert this next ZH link)
But wait, there’s less. Under the cover of an early close (bonds done at 2p) and dead quiet summer time markets (think Hamptons Hedge), this just in from HOTLANTA FED
Sahm Ruler, back over to you?
… for some MORE SNARK, ZH summary of Q3 Day 1 (when almost nobody was lookin as Hamptons Hedge was in full effect),
HEREis a link thru to a few sellside observations — a taste of what Global Wall St is thinking and of the narratives they are selling. I have ALWAYS maintained that I’ve never had to be smartest in the room, simply have to know who is (and isn’t) and with that in mind, a few things stand out
ARGUS (indpendent EQUITY research since 1934): Investors Beware, 3Q is Here BCA: Beware Of Another Downleg In Risk Assets 1stBOS short (5s, 10s) NEUTRALIZED BAML: Governemtn bonds on course for the worst year since 1865 (take THAT, DB)
Citi: ‘cost of hedging move LOWER IN TREASURY YIELDS HIGHEST SINCE MARCH”
OTHER items of interest and links,
EPB Macros latest [Chart Of Interest] New Orders CRASH In June, because,
… Given that the ISM Manufacturing PMI holds a very strong correlation to earnings estimates, credit spreads, and more, the probability that we see further declines should be a warning sign that more turbulence is ahead in cyclical risk-assets.
The latest FELDER REPORT — because, you know, it was
(we know, we get it … DBs Jim Reid and his chart continues to be the gift that keeps on givin’ and so now we’ve got to move on // back TO whatever it is BAMLsaid)
BBGs Weekly Fix: bonds bet Fed cools inflation with a recession
This was the week when bond investors piled back in as expectations grew ever stronger that central bankers will hike interest rates fast enough and high enough to cool inflation. And that they will cause recessions in the US and elsewhere in the process.
Treasury 10-year yields that came within a whisker of topping 3.5% in mid-June for the first time in 11 years dropped back under 3% by Thursday. The zeitgeist was captured by Bob Michele, JPMorgan Asset Management’s chief investment officer, who said the outlook now is worse than it was when he kicked off his Wall Street career during the stagflation crisis of the early 1980s.
The backdrop to all this was a clarion call from the major central banks that, outside Japan, large and rapid rate hikes will keep coming. Federal Reserve Chair Jerome Powell, meeting in Sintra, Portugal with his international peers, led a requiem for the era of low inflation. The bond market moved rapidly to price in an end to hiking cycles, with the Fed now seen cutting rates by half a point over the second half of next year. And even as policy makers fretted inflation is here to stay, markets started betting that the “Great Inflation Trade of 2022” was done and dusted.
Continue on for more on how MOVE > VIX details of this visual,
“The stock market is not the economy” is a popular thing to say. The problem is it isn't true. Or, at a minimum, it’s extremely lazy and ignores all the ways in which the stock market absolutely intersects and influences real activity.
After the worst first half for the market in years, maybe it's time to talk about some of those ways.
Let’s start with something really obvious and uncontroversial. The tumble in tech stocks, and the closure of the IPO/SPAC window, has all kinds of downstream effects in startup world. Tech layoffs are piling up as company after company realizes that funding in the future will be more expensive, scarce, or non-existent for them. That’s not a very complicated instance of stocks mattering for the real economy.
Of course, this then affects other parts of the market. We see, for example, homebuilders talking about how housing markets (like Seattle) that had been red hot are now turning cool, owing to the diminished wealth of those who get their compensation from equity.
The stock market also affects corporate behavior. Something that oil analyst Rory Johnston has talked about a lot, including on a recent Odd Lots episode, is how energy CEOs look to the stock market to gauge what kind of capital allocation decisions will be rewarded. When oil companies are rewarded by the market for pumping more, they pump more. When oil companies are rewarded for maximizing cash flow, they maximize for cash flow…
Ever MORE from (John Authers’) of BBG with a diffferent analog
… Spoiler alert: We probably have a rough road ahead!
Here’s a chart of the High-Yield Bond ETF $HYG with a five-day rate of change in the lower pane:
… Here is an overlay chart of the S&P 500 $SPY and credit spreads measured by High-Yield Bonds ETF HYG relative to the US Treasury ETF $IEI:
Or perhaps you’d like to believe … gulp … ITS DIFFERENT THIS TIME,
LPL: Could Inflation Be Entering A New World Order?
… Policy makers must come to grips with a real possibility that inflation rates will not come down to their preferred targets for many years. The latest inflation report is a juggernaut for the Federal Reserve as they use blunt instruments to slow aggregate demand during a time when inflation is also irritated by supply shocks. For more on the current environment, be sure to watch our latest Econ Market Minute, where Chief Economist Jeffrey Roach gives more economic insights.
… As I have also been highlighting in recent presentations, politically the idea of allowing rising unemployment to keep commodity prices in check, and keeping interest rates low look very unpopular. Policies have now tended to pay compensation directly to the worse off in society, which boosts commodity demand. As I pointed out in my last presentation, motivation is an important factor for me. Given positioning, and changing politics, it does not look too late to short bonds to me.
HEREis a fun one (Russia’s Invasion of Ukraine and Its Impact on Stock Prices) — from the organization which says they don’t much care about stocks (yet have, at times, written about wealth effect defending their lives)
AND finally, for any / all (still)interested in trying to plan your trades and trade your plans in / around FUNduhMENTALs, here are a couple economic calendars and LINKS I used when I was closer to and IN ‘the game’.
First, this from the best in the strategy biz is a LINKthru TO this calendar,
I really appreciate your sharing these, do you have redistribution rights for the snippets of the sellside documents? Or how do you get around copyright for them? This is quickly becoming one of my favorite substacks so thank you for all the effort that goes into it!
I really appreciate your sharing these, do you have redistribution rights for the snippets of the sellside documents? Or how do you get around copyright for them? This is quickly becoming one of my favorite substacks so thank you for all the effort that goes into it!