(light volume belly-led selloff overnight) while WE slept; EPBMacro update; GDP delusions -UBS; copper / gold; M2 growth slowing = PIVOT
Good morning … New Homes PLUNGE as rates RESURGED (ZH); Bank of Canada Under Delivers with 50 bp hike (via BMO on BoC),
… Adding to the bullish tone in Treasuries that brought 10-year yields as low as 3.99% this morning was the Bank of Canada, which hiked rates 50 bp compared to the 75 bp consensus. This brought policy rates to 3.75% from 3.25%. The move was widely read as a dovish hike and the Bank noted "Future rate increases will be influenced by our assessments of how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflationary expectations are responding." We're not interpreting this as putting 50 bp on the table for the Fed next week, but decreasing the pace of hikes incrementally supports the case for the Fed to scale back to 50 bp in December.
Need / want MORE on BoC? They BLINKED (ZH) …
And so, as the world of step downs, PIVOTS or whatever else you might prefer to call it, is given continued // new life and enables EQUITIES to fight off less than good news and power themselves HIGHER…
… here is a snapshot OF USTs as of 714a:
… HERE is what another shop says be behind the price action overnight…
… WHILE YOU SLEPT
Treasuries have been led lower by the intermediate sector with under-performing Bunds a drag along with evidence of paying in swaps (spreads 1+bp wider). DXY is higher (+0.4%) while front WTI futures are modestly higher too (+0.5%). Asian stocks saw relatively modest declines in China and Japan markets but higher closes elsewhere, EU and UK share markets are mostly lower while Es futures are little changed here at 7am. Our overnight US rates flows saw the intermediate-led bleed in Treasury prices begin during Asian hours with real$ selling noted in the long-end while credit-linked names sold intermediates. Overnight Treasury volume was ~80% of average overall with 3yrs (122%) seeing the highest relative average turnover overnight.… Our first is a look at the shorter-term chart (daily) of Treasury 5yr yields and how they took out their well-defined, multi-month bear trend at yesterday's close. This morning 5yr yields have snapped back up to that former trend from below- similar to the following attachments that key on select yield curves. What gives us confidence that the risks tilt toward lower 5yr rates now is the bullish divergence where higher highs in yields since mid-September came with lower highs in momentum. If tomorrow's close confirms this, we'd expect a return to the 3.75% area (Oct 4th low print) up ahead.
… and for some MORE of the news you can use » IGMs Press Picks for today (27 Oct) to help weed thru the noise (some of which can be found over here at Finviz).
Now in as far as things and LINKS from the Global Wall St inbox goes … YESTERDAY I brought forward Rosie (making the case for bonds) and today we should begin with an equally independent and DEEP THINKER … EPBMacro’s Eric Basmajian who tweeted that he
…recently upgraded my entire economic framework into video format. The video runs 10 minutes and covers both my secular and cyclical time horizons. Watch Here
If yer NOT following along this guys work, well, yer missing the point. I always said I don’t have to be smart, just know who is. Guys like Dr. Lacy Hunt, Danielle DiMartino Booth. ERIC (@EPBResearch). Rosie (@EconguyRosie) … These sorts don’t come along often and certainly do not offer their wares cheap … WHEN they do, well … you should pay attention.
Otherwise, we’re stuck with the general Wall St narrative creation like these:
UBS: GDP delusions
US third quarter GDP is due. After two negative quarters, the consensus is for a third quarter acceleration. It is worth taking a step back to review this narrative. Apparently, the US economy contracted while simultaneously creating between 2.1 million and 2.7 million jobs, but has then experienced accelerating growth amidst a slowing housing sector and deflationary environment for consumer durable goods. Markets will no doubt react to today’s data, but the story it tells is the reverse of any plausible reality…
Um, OK … thats something I can actually get my arms around so good on ya, Paul.
WisdomTree (Flanagan) U.S. Treasury Yields: The Next Generation
… Conclusion
So, is there more to come? In other words, can UST yields continue rising from here? Let’s put the answer in the context of future Fed policy. Last week, Fed Funds Futures touched the 5% threshold as the terminal rate for the trading range by June of next year. If this level does come to fruition, we believe that Treasury yields will more than likely continue to rise, especially along the front end of the curve, as yields need to adjust to this potentially higher Fed Funds Rate.This is where UST FRNs come into play, as this vehicle is designed to ‘float’ higher with the Fed, due to the resetting mechanism being tied to the weekly UST 3-month t-bill auction. The WisdomTree Floating Rate Treasury Fund (USFR) is an investment option on this front.
Looking ahead, these higher Treasury yields, both currently and in 2023, are creating a scenario in fixed income that investors have not been presented with for a decade and a half. As a result, opportunity could be knocking on the door for bond investors in 2023.
Knock Knock. Who’s There? OPPORTUNITY? John Authers’ latest would suggest he’s also in Camp PIVOT,
… There was at least one data point within the US that added to the chance of a change in monetary policy. M2, a broad measure of money circulation, declined by more than 6% last month, compared to August. That’s the biggest decline since recording it began more than 50 years ago. The extraordinary Covid stimulus spiked up money supply growth in 2020 — but from this base, money is tightening as never before:
You don’t need to be a monetarist to think that this is a big deal. It does suggest that the moment for deceleration, if not a pivot, is close at hand.
Um, OKIE DOKIE …
How about wrapping this one up and looking at THIS VISUAL dropped by Chris Kimble — Copper / Gold and BONDS
AND … THAT is all for now. Off to the day job…