I know. Nothing is as important as Addidas and YE partnership FINALLY coming to an end … hey, it was worth 8% or so of their sales so it’s no wonder it took so long ? I mean he was ONLY being antisemitic. IF, on the other hand, he was somehow being ANTI BLM or one of the many other crusades near and dear TO the administration — this is NOT a political view / blog / thingy so I’ll quit while I’m behind — well you’d imagine big tech would have shut him down, you know, as quickly as they did the Hunter Biden laptop story?
Ok, clearly a bit too far off the rails, I do apologize BUT as core tenet of this administration, all of this ultimately DOES matter in our highly politicized economic environment. YE = 8% of sales = DELAYED reaction to affiliation … you tell ME what is right / wrong and as you contemplate THAT, here is a snapshot OF USTs as of 705a:
AND … HEREis what another shop says be behind the price action overnight…
… WHILE YOU SLEPT Treasuries have been led higher by the outperforming belly of the curve (2s5s10s -2bp) and by bull-flattening moves in Germany and the UK too. There was little new news overnight (see above), DXY is little changed while front WTI futures are lower (-1.5%). Asian stocks were mixed, EU and UK share markets are mixed while ES futures are showing -0.3% here at 7:05am. Our overnight US rates flows saw a 'muted' Asian session with Treasury prices higher on the back of rallies in JGB's (40yrs -8bp) and Aussie bonds (10's -7bp). We saw better real$ buying flow in both intermediates and the long-end- but in small clips only. In London's AM hours we saw two block buys in FV and TY futures that extended the rally out of Asia but our cash flows were skewed to better selling from fast$ and EU AM's all across the curve. Overnight Treasury volume was ~85% of average overall with 7yrs (126%) seeing the highest relative average turnover overnight amid the block flows.
… 2y1y OIS rate, daily: With curves historically flat, it remains our hunch that front end forwards may continue to drive/pace the US duration bus. Here we show that this morning the 2y1y rate once again sits atop its well-defined, multi-month bear trend (3.78% today). Many other rate benchmarks have similar bear trends in place (the bear trend in Tsy 5yrs comes in at 4.184% today; in 30yrs the equivalent bear trend intersects at ~3.85% or a whopping 50bp below spot levels) but the further out the curve one goes, the further away spot levels are from trend amid the recent steepening. Should 2y1y rate (or equivalent front end benchmarks) take out its bear trendline with a close, we'd expect longer duration benchmarks to potentially take out theirs in a kind of 'rippling' action out the curve. One idea.
Treasury 2s10s curve, weekly: Base built since late summer (around the 2000 cycle low), medium-term momentum (lower panel) now aims steeper- guiding for the potential of a corrective move steeper in the weeks or few months ahead. If true, such a rebound could eventually be enough to flip long-term/monthly momentum up in favor of more steepening from its deeply 'oversold' level.
… and for some MORE of the and to help weed thru the noise — HARKSTER.com and sites such as Finviz …
As far as what is on Global Wall Street’s mind and what the wiz kid cognoscenti is pushing into inboxes over the past 24hrs, DB:
… Figure 2 is the overall chart covering 318 global episodes back to 1920. We split results for DM and EM for all three periods at the end in an appendix. They do not look materially different from the overall global results.
Looking at this full history, the evidence shows that once inflation spikes above 8%, median inflation takes around 2 years to even fall beneath 6%, before settling around that level out to 5 years after the initial 8% shock. This is around 2pp above the pre-shock median of c. 4%.
However, the current consensus expects us to be back at or even below 3% just two years after we initially moved above 8%. This is far from impossible, but it would be around the 25th percentile of observations through history, and around 4pp beneath the median outcome…
… This interest rate volatility continued through the year and is evident by the drastic rise in the ICE BofA Swap MOVE Index, which measures bond market volatility. Over the last five years, the index was only higher in March 2020 during the Covid selloff.
Accordingly, volatility across various fixed income portions of the market were also elevated, with a clear correlation to duration risk. While the ICE BofA 1-3 Year U.S. Treasury Index displayed relatively lower volatility due to its lower duration exposure, the volatility of the ICE BofA 15+ Year U.S. Treasury Index was nearly eight times higher…
Ok, right. Got it…someone ‘splain it now to 2yy here and over in the UK?
As far as yesterday’s economic FUNduhmentals go, Goldilocks,
Global PMI Monitor: Sharper Declines in New Orders as US Demand Weakens and European Energy Costs Rise
… Exhibit 1: The Manufacturing New Orders PMI Declined Sharply in Major DMs (-6.2pt in the UK, -4.3pt in the US, and -3.5pt in the Euro Area), on Weakening Demand in the US and Prior Surges in Energy Prices in Europe
And from FUNdamentals to politics of the moment … from 1stBOS
Surprising upsets can happen, but the most recent polls suggest that the Democrats will lose control of the US Congress in the November 8 midterm elections.
Divided government would probably produce legislative gridlock until after the November 2024 presidential election. This implies the budgetary impact on the economy will decline from a fiscal drag of about 3.8% of GDP in FY22 to a drag of about 2% of GDP in FY23, based on Hutchins Center estimates.
The performance of pro-Trump candidates will be a key feature of the elections as a guide to former President Trump’s prospects for the 2024 election and to the risk that this election is disputed even more intensely than the 2020 election.
We judge US equity performance following the midterms to link mainly to the economy, and much less to politics. On this front, we think the economic outlook for 2023 will be highly challenging for risky assets.
10yr US Inflation Expectations have moved higher over the past few days after talk of a dovish Fed pivot, which markets are seemingly judging to be too early. This leaves the market testing important medium-term resistance at 258bps, which includes the 50% retracement of the 2022 fall and 200-day average. A close above here would weaken our still intact call for a medium-term move lower in US inflation expectations, but only a weekly close above 267/70bps would negate this call.
This same shop had gotten stopped OUT of tactical LONGS but as far as 10yy go,
…We are tactically neutral at present, but mildly biased towards 4.27/275% capping on a closing basis for now.
Once again, sorry for the political sidebar / rant just above. Couldn’t help myself and realize I should have and so … THAT is all for now. Off to the day job…
This was not a political rant, it looked more like a MAGA talking point