o/n; (Economist)MAGAZINE COVER as indicator? (tech)FI outlook; cross asset cover for higher rates; tactical steepener's risk scenarios; negative yield debt in decline (a positive for FI investors?)
In light the all the central banking, geo-political (false flags, attacks, oil price spikes) and earnings angst of the past 24-48hrs and with NFP straight ahead it’s best to say even LESS than normal here and now. No promises, but I’m tryin’, really I am, to allow the dust to settle and THEN attempt to consider all the facts.
I hope to do that and will attempt to have somewhat more to offer over the weekend but for now, HERE is
Bloomberg Weekly FIX: How Do You Trade A Surely TERRIBLE JOBS REPORT
AND for somewhat more on NFP,
ZeroHedge: January Payrolls Preview: It Will Be A Bloodbath
This is NOT a surprise, as we know what The White House was thinking last weekend.
Now in as far as what happened overnight, you know,
Treasuries are modestly bull-flattening on average volumes overnight, EU risk-assets still on the back-foot after yesterday’s ECB and BoE Meetings (DAX -1.4%, SX7E -0.5%, EUR +0.3%). EGBs continue to underperform despite Eurozone retail sales having shrunk 3% m/m in December, the 10y US-German spread tightening another 5bps this morning, while 10y BTPs have now widened ~34bps on the week. WTI crude has also jumped to $91.58 this morning, hitting the highest level since 2014. SPX futures are showing -10pts here at 6:45am, DXY -0.15%, 5s30s curve -2bps.
Same operation offering,
US News: Barkin says rates should move to pre-pandemic levels, then assess next steps (Rtrs) E-Commerce Giant Surges on Subscription Price Rise (FT) Why real inflation is so hard to measure (FT) Stomach-Churning Single Stock Swings Mark New Chapter (BBG) America Is Facing a Great Talent Recession? (BBG op-ed) This helps: 50% of U.S. Small Businesses Raised Wages in January (BBG)
They ALSO pull the very latest Economist magazine cover which speaks volumes,
HERE IS LINK to the story and the subtitle — perhaps missed by algos and unwanted by the haters (who we know … are gonna hate), reads But the low-rate era is unlikely to come to a permanent end
And for some more of the news you can use » IGMs Press Picks for today (03 FEB) to help weed thru the noise (some of which can be found over here at Finviz).
Moving along and hurrying TO a conclusion, a couple things from the inbox that are UNRELATED TO ECB, BoE and NFP because by now you’ve certainly had your fill and others have already jumped TO conclusions.
Here are some LEVELS to watch via, 1stBos (tech)FI outlook
10yy WEEKLY visual — A small bear “pennant” pattern looks to be forming, and we maintain our core bearish bias for our first objective at 1.965/2.00%…Short-term Strategy: We turned tactically bearish again at 1.77%, with key resistance at 1.69% and with support at 1.96% where we would turn neutral.
And on 30yy, DAILY — staying TACTICALLY BEARISH … We continue to look for a break above 2.19/215% to trigger a resumption of the bear trend…looking for a move to 2.32/33%. We would turn tactically neutral below 2.03%.
Keep your friends close and your stops closer.
A large German bank offered some cross asset cover for rates selling off
The rates sell-off is validated by other asset classes
Unlike in 2018, the rate sell off is validated by other asset classes, as evidenced by the behaviour of typical UST10y proxies: financials/S&P500, copper/gold, the yen and oil. The cross asset proxy (which is a regression weighted combination of the above four variables) has increased by a little more than 50bp since the recent low in yields early December. In contrast, the cross asset proxy was trending down in 2018 and its decline accelerated in Q4-18, just before the Fed's u-turn. Even though the policy error narrative is becoming increasingly popular, the rates sell-off remains sustainable for now.
The same bank, diff analyst, following along the case made for tactical steepener with this,
Risk scenarios and the case for tactical steepeners
Given what we saw so far in terms of the Fed actions and its communication as well as the market’s reaction, the base case scenario has revolved around bear flattening of the curve led by the front end, which has become a crowded trade in the course of time. This is what the net specs positioning in futures and mutual fund / ETF flows indicates. As a contrarian indicator of subsequent rates changes, this type of positioning is suggestive of bear steepening bias.
Current flatness of the curve is vulnerable to recalibration of the blend of accelerated hikes vs. more aggressive balance sheet unwind. In addition, a possibility of a soft patch could trigger a steepener which would only be reinforced by the existing positioning. Together with the overly compressed term premia and general perception of the Fed being behind the curve, all these factors present a combined risk to the base case scenario currently priced in by the market.
We are buyers of tactical steepeners either through mid-curve payer spreads or curve cap spreads…
With all THIS in mind, there IS a silver lining of sorts. Perhaps this is more SPIN and OPINION than fact BUT as rates market gets hit, yields UP / prices down, haters still gonna hate BUT there are more reasons to pause and look TO FI than there were before. Said another way, Cormac over at BBG notes,
Enemies of financial repression across the world will take some comfort from the recent slump in the amount of bonds that offer investors a guaranteed loss if held to maturity. The amount of negative-yielding debt has fallen to $7.7 trillion, the lowest since 2018, according to a Bloomberg gauge. It has slumped almost 60% since its late-2020 $18 trillion peak as bond markets reacted to the beginning of the pull back in unprecedented stimulus that sent yields crashing during the pandemic. The climb back above zero in benchmark German bund yields was the most noteworthy part of the recent bond selloff. Irish and French five-year yields turned positive this week and even Japan's are threatening to do so. Still, the surge in inflation has meant the ‘real yield’ available to investors remains deep in negative territory in many parts of the world. The inflation-adjusted 10-year Treasury yield was around minus 0.7% on Thursday while its German equivalent was about minus 1.9% Wednesday.
Again, with so many facts and opinions being thrown at you, I thought a shorter — quick hit — is most appropriate in light of ECB, BoE and NFP. I HOPE to have something to add over the weekend. In the meanwhile, have a great start to the end of the week,
Perhaps I should have made that umbrella read, “2.13%”
Looks more like a coin-flip (momentum on weekly charts appear directionless to ME and rates look to be nearly in the middle of their overall RANGE).
… that’s all for now. Off to the day job…