o/n (some sewer tracking...); traders toying with rate CUTS; traded out bond BEARS; stagflation's Top of Mind
Good morning … Apparently the law of round numbers isn’t just a made up thing as we recently traded up near 2.50% and someone, somewhere crazy enough to (buy/cover a short)?
30yy HOURLY not giving off any good vibes and short-term momentum hooking back UP but perhaps ‘nuff have been wrong-footed? Lets wait and see how the day develops…Meanwhile,
CNBC: UST yields FALL BUT 10yy holds ABOVE 2.10%
CNBC: Dow futures fall 100pts amid Ukr-Russia war, COVID fears in China
In as far as a more professional view, here’s what happened
… WHILE YOU SLEPT
Treasuries are higher and the curve steeper as energy prices continue their correction (see attachments again today) while Germany saw the biggest-ever drop in ZEW confidence during this month. DXY is lower (-0.23%) while front WTI futures are too (-5.6%). Asian stocks were mostly led lower by China (CSI 300 -4.57%, HS China Ent -6.58%), EU and UK share markets are all in the red (SX5E -1.45%, FTSE 100 -1%) while ES futures are showing UNCHD here at 6:55am. Our overnight US rates flows were unavailable at press time but overnight Treasury volume was ~120% of average overall with 7yrs (183%) seeing some relatively standout average volume overnight.… US News: Powell admires Volcker- he may have to act like him NYT 10 US states saw a record low unemployment rate during January BBG Sewer tracking data warns of new bump in Covid cases after lull BBG One EV maker has raised prices twice in less than a week RTRS El-Erian on Ukraine war: "By the time the spillovers and spillbacks have made their way through the world, we will have faced some of the toughest economic and financial challenges of the 1970's, 1980's and 1990's. But there is one important difference: they will all have materialized at the same time." FT
… Today's first three attachments look at the trifecta of new momentum sell signals in BCOM. Starting with the daily chart, a new downside signal emerged last week and it remains in place today (lower panel). The Shooting Star (also known as an inverted Hammer) on March 8th at the highs is a reliable trend exhaustion signal and, looking back now, it was also a likely blow-off top.
AND from DBs early morning read,
Some hints of positive diplomatic developments in the Ukraine crisis that materialised on Sunday night helped contribute to another major sell-off in bonds and a mild risk on move in European equities yesterday. While in the States, the reality of the impending Fed tightening cycle pushed yields higher and drove equities lower.
Bonds are in a strange situation at the moment as we seem to have reached a point where higher energy prices are deemed to be signalling recessionary risks and encourage flight to quality flows that push nominal yields lower, outweighing the potentially savage inflationary impact. Conversely, the collapse in the likes of oil and gas since early last week has led to a huge rise in yields as it appears policy tightening is back on the central bank menu. Brent is around -25% from its intra-day highs last Tuesday and 10yr bunds are +46.6bps higher since hitting -0.10% last Monday morning. Meanwhile, 1-month futures on Dutch Gas have fallen from a high of 335 last Monday morning to 110.50 at the close last night. Remarkable moves…
… and for some MORE of the news you can use » IGMs Press Picks for today (15 March) to help weed thru the noise (some of which can be found over here at Finviz).
In as far as a few other items on my mind, in my inbox and helping shape how I am currently thinking ‘bout markets and the global macro landscape, I’ll begin with this, from BBGs EZ Five Things,
Traders are ramping up their bets on the amount of Federal Reserve rate hikes in 2022 but are still toying with the possibility of a rate cut as soon as next year. At one stage on Monday the swaps market priced in seven quarter-point hikes but the spread between June and December 2023 Eurodollar futures is in negative territory -- signaling some see the Fed potentially rolling back a move over that period. That ties in with the stagflation narrative roiling global assets in which high inflation and rate hikes weigh on economic growth. Speculation on a supersized Fed move has shifted from March to May with bets on a 50 basis point hike rising steadily in recent weeks. But expectations for such an aggressive hiking cycle are surely vulnerable in the second half of this year, especially if wagers on a late-2023 rate cut begin to gain traction.
Toying with the idea of CUTS next year but TECHNICALLY TRADING things here and now a bit differently. 1stBOS FI UPDATE with 2yy as it’s CoTD yest aft,
Chart of the Day: Global bond markets look to have resumed their core bear trends quicker than expected as equity markets continue to stabilize and ahead of central bank meetings later this week. At the front end of the US this has seen the 2yr US Bond Yield surge to a new high for its uptrend to leave the market on course for major support at 1.88% prior to the FOMC, the 61.8% retracement of the entire 2018/2020 fall in yields. Our bias remains for a fresh cap here for now and we do not look to chase the market through here post the FOMC this week. Should weakness instead directly extend though we see support next at 1.96/2.00%, then 2.155%.
That SAID, leaning on discipline, the current set of ‘trades’ are to be selling to turn tactically BEARISH at resistance (5s vs “1.985/945%, with support then seen at 2.10/11% and then 2.24% where we would turn tactically neutral”, 10s vs “2.00%, with support seen at 2.16/18%, where we would turn tactically neutral. We would also turn tactically neutral below 1.96%.” and 30s vs “2.40%, with scope then for a move to support at 2.63%, where we would turn tactically neutral. We would also turn tactically neutral below 2.335%.”
Finallay, a couple other things are what I’m thinking about, the very latest from Goldilocks,
From the report, a couple visuals which grabbed MY attention,
Goldilocks taking up some company with the likes of DataTrek (via ZH)
The Bond Market Is Screaming Stagflation
… The chart below shows this history/recent breakout and also compares the 2003 – present timeseries to the Federal Reserve’s 2 percent inflation target. In the middle of the chart, we have highlighted the 2011 – mid 2014 period. Recall the crude oil prices were high back then, as they are now, ranging around $100/barrel for over 3 years. Even still, inflation expectations remained around 2 percent because the US economy was recovering only slowly from the Great Recession.Takeaway: the TIPS market’s inflation expectations are no longer as well anchored around the Fed’s 2 percent level as they have been since 2003…
Don’t look now but ‘Earl comin off the boil which may be some sort of tax cut for consumers (if it weren’t already a tax HIKE) …
… that’s all for now. Off to the day job…