(belly offered on above avg volumes ...) while WE slept; 2023 darts continue flyin'; stories 'bout job cuts
Good morning … little of note overnight (see ODs comments just below) and Macy’s out a few mins ago … CNBC:
Macy’s raises its earnings outlook after results top expectations
I’m just thinking about the getting the band back together (bringin’ Thing 1 home Saturday, NYG Sunday and then bring on the Parade and a date with ‘Merica’s team @ 1pm NEXT Thursday!!) That aside, here is a snapshot OF USTs as of 703a:
… HERE is what another shop says be behind the price action overnight…
… WHILE YOU SLEPT
Treasuries are modestly lower with the belly leading lower (see attachments). DXY is higher (+0.55%) while front WTI futures are lower (-1.7%). Asian stocks were mixed/lower, EU and UK share markets are ~modestly lower while ES futures are showing -0.6% here at 6:50am. Our overnight US rates flows saw early Treasury selling during Asian hours before recovering losses as the London cross-over approached. We had credit-linked names telling intermediates, a flow aided by strong employment data in Australia (link above). London's AM session was less active with some buying in 20's a perhaps welcome feature after yesterday's solid auction. Asia and EU real$ names sold the front end after the recent rally. Overnight Treasury volume was roughly 115% of average overall with the highest relative average activity seen in 10's (129%) and 30's (144%).… Last week a Japan-based asset manager asked us what could spark a sustained rise in bond prices. Our response was simple: higher bond prices…our first attachment looks at the latest update of net foreign bond flows out of Japan. We have no idea if there are unrealized bond loss issues over there but it may be fair to assume that Japan is generally light or underweight foreign bonds where there may be some serious 'stored energy' to support the recent rallies under the right conditions. Indeed, the emerging indications that USD may have peaked only bolsters that thinking, we reckon.
… and for some MORE of the news you can use » IGMs Press Picks for today (17 NOV) to help weed thru the noise (some of which can be found over here at Finviz).
And as the world turns, this time of year is football, family, parades and … year ahead outlooks from Global Wall Streets narrative creation machine … Having talked at length about bonds and yields this past weekend, it seems the memo is sticking and THE narrative remains the same.
Goldilocks: Macro Outlook 2023: This Cycle Is Different
(why THEY are allowed to say this time is different and given a pass is beyond me)
■ Global growth slowed through 2022 on a diminishing reopening boost, fiscal and monetary tightening, China’s Covid restrictions and property slump, and the Russia-Ukraine war. We expect global growth of just 1.8% in 2023, as US resilience contrasts with a European recession and a bumpy reopening in China.
■ The US should narrowly avoid recession as core PCE inflation slows from 5% now to 3% in late 2023 with a ½pp rise in the unemployment rate. To keep growth below potential amidst stronger real income growth, we now see the Fed hiking another 125bp to a peak of 5-5.25%. We don’t expect cuts in 2023.
■ How can core inflation fall so much with such a small employment hit? The reason, we think, is that this cycle is different from prior high-inflation periods. First, post-pandemic labor market overheating showed up not in excessive employment but in unprecedented job openings, which are much less painful to unwind. Second, the disinflationary impact of the recent normalization in supply chains and rental housing markets still has a long way to go. And third, long-term inflation expectations remain well-anchored…
… The second reason why this cycle is different is that the recent normalization in supply chains and rental housing markets is a source of disinflation not seen in previous high-inflation episodes such as the 1970s, and it is only beginning to show up in the official numbers (Exhibit 8).
Goldilocks: Top Ten Market Themes for 2023: The Return of Yield
Following on from our 2023 Macro Outlook, here we lay out the top macro and market themes that we expect to dominate the investment landscape going into 2023—a year in which we finally put pandemic disruptions behind us to deal with more conventional risks around inflation and recession, and return to investing in a world with higher yields after more than a decade.
Along the narrow path: Our central case of a softish US landing but large risks on either side
Value versus the cycle: Improving valuations, but cyclical conditions for a trough unclear
In recession’s shadow: Downside risks until inflation cools more and activity stops slowing
Towards “ordinary”: Lower rate volatility and an extended cycle may still mean mediocre returns
Dollar dominance: Timing the turn
What a drag: Hard to move beyond energy capacity constraints
Bull in China shop: Tactical potential, structural concern
Constrained EM upside: Less broad convexity, more selection
Less policy risk, more growth risk: Recession risks plus inflation relief favor fixed income, cash for now
The return of (real) yield: Capped upside without deep cheapness or a large output gap
… By the same token, it is hard to have a strong case for deep upside in asset markets without deep cheapness (Exhibit 20).
2023 aside the firm ADDING A HIKE to their current Fed call
Moving along then and actually looking back just a bit, Ruskin on recent TICS data
Huge private US bonds purchases swamp BOJ intervention
TICs data again showed very strong private inflows into US bonds in September. There was a net $60b inflows into Treasuries from a record $175b in Aug, but still extremely healthy. Net private purchases were especially strong at $98b, while official flows were minus $37.5b, which was almost certainly dominated by BOJ/MOF intervention sales, as is further evidenced by Japan being a big seller of Treasuries to the tune of $35b on the month. The data then shows that private purchases did swamp the first round of official/intervention related Treasury sales.
The strong USD through the late summer, had a very strong private sector bond inflow foundation. Even through the present it should be expected that these foreign flows into US bonds have remained strong. What is likely to have changed is that as the USD has come off its highs, there has been a race for foreigners to raise their currency hedge ratios on their USD assets, and the impact of these USD sales then becomes self-propelling. Note that in September, short-term bank related flows at minus $65bn, were already turning significantly negative.
Looking somewhat LESS in the rear view mirror, WELLS on yesterday’s ReSale TALES
Is the Resilient Consumer a Problem for the Fed?
Retail sales increased again in October with support across stores types, particularly autos and gas stations. Despite the apparent endurance, consumers are struggling to keep up the pace. Last time credit card borrowing was growing like it is now, we were heading into the 2008-2009 recession.
I’m sure it’s FINE … nothing to see here … move along. Back to your cars … shows over.
Moving right along and while not directly from Global Wall St’s sellside, BBG (comprised of and funded largely by those with vested interest), talkin of job cuts
Equities had been trading with some level of euphoria as signs of cooling inflation set off bets the Federal Reserve is set to become significantly less hawkish. The potential sting in the tail is that such policy hopes are only likely to come to fruition if there is sufficient economic pain readily apparent to spur such a pivot.
This earnings season has brought signs that rougher times are brewing, studded as it has been with profit warnings, job cuts and share-price volatility. Meantime, bonds keep making it clear that at least some investors are expecting that rate hikes are going to help deliver a very hard landing indeed. Sure enough, Wednesday brought strong retail sales and a bevy of Fed hawks to send stocks swooning on the realization that policy is going to get significantly tighter from here. The classic yield curve -- the gap between two- and 10-year Treasury rates -- promptly tumbled to fresh 40-year lows to underscore recession concerns.
Formerly OF the sellside, Willie Delwiche now an AllStar CHART er ist noting,
Bonds Not Feeling Hopeful
Long-term yields are moving lower while short-term yields continue to rise. The spread between 10-year and 3-month Treasury yields is the most negative it has been in two decades. It has been four decades since the spread between 10-year and 2-year yields has been as negative as it is now.
Why It Matters: Yield curves invert (short-term yields become higher than longer-term yields) when the bond market thinks that the Fed has already or will soon become too restrictive for the economy to remain healthy. It is the market betting that the Fed will have to cut rates, bringing down yields at the short-end of the curve. Inverted yield curves are a sign of macro stress and have historically been reliable forecasters of recession. The depth of the current inversions is a warning signal from the bond market, a call for caution on the economy and earnings (and by extension, stock prices). It’s not just happening in the US – except for one blip during 2008, the spread between German 10-year and 2-year bond yields is at its lowest level in three decades.
Finally, from Scott Grannis: Near-term Fed pivot almost guaranteed
… Inflation will be with us for some time to come, but its rate of increase will continue to moderate. This doesn't mean the Fed has to continue to tighten, however. Just maintaining its current stance would probably be sufficient to get inflation back down to 2%. That assumes, however, that M2 growth continues to be essentially flat and the government avoids sending out another massive batch of checks funded with the printing press.
Have a great start and … THAT is all for now. Off to the day job…