HERE is some light pre-summer reading from Global Wall Street’s inbox … a few curated weekly notes and thoughts to help as you plan your trades and trade your plans.
A few items which caught MY eyes
EPBMacro shows how / why risk will continue to underperf more defensive sectors
Barclays visual, “Large macro shocks have historically triggered US bond fund OUTFLOWS”
BAML (recently stopped out from leaning long) says, “…there is still a role for duration in portfolios”
GS out “UPDATING” (ie LOWERING) its GDP call and increasing URATE forecasts, “to Reflect Tighter Financial Conditions”
Gavekal (Knowledge Leaders Cap) remind us all why we’re FICC (Fixed Income Commodities and CURRENCIES) and eyes on JPY but also, perhaps more importantly, the CNY,
… These devaluations historically have been well correlated with US Treasury rates as well, and the recent devaluation provides a somewhat rosier picture for those looking to add some duration to their portfolio. It probably isn’t a coincidence that 10-Year US Treasuries have turned lower in yield as the devaluation hit.
Rosies update (monthly) STRATEGERIZER — Treasury Bond Duration Model suggests, “conviction on ABOVE-AVERAGE DURATION EXPOSURE IN THE PORTFOLIO HAS RARELY BEEN HIGHER”
And more. Have a point and click ahead of this evenings markets open and for some of the weekend news you can use head TO Finviz or even over to Harkster.com for some knowledge without the noise.
In addition, here’s a chart from John Authers FRIDAY MORNING MISSIVE, Charts, ‘Catharsis’ and the Psychology of Crowds, which I couldn’t help but pass along because, you know, everyone knows …
… Bonds Still in Control One chart, I submit, matters more than all others. The long-term downward trend in the 10-year Treasury yield has carried on for decades. Every time yields have threatened to break above that trend line, a financial accident has happened. In order, marked by circles in the chart below, we have the S&L -driven bear market of 1990, Mexico’s Tequila Crisis in 1994, the dot.com bubble in 2000, the GFC in 2007, and the “Volmageddon” technical selloff of 2018, followed later that same year by the “Christmas Eve Massacre” as traders rebelled against the Federal Reserve’s plans for quantitative tightening.
There are different ways to draw that trend line, but whichever way you choose to try to join the dots, it’s well and truly broken now. And the fall in equities, and in speculative assets such as crypto, got going in a big way when it was breached:
This leads some to say that it’s cause for optimism that bond yields have fallen this week, after briefly hitting a high of 3.2%. It’s certainly a big deal, and suggests that the market crisis may be moving in to a new phase. But look at the circles in the chart above, and you’ll see that the damage they caused usually lasted a while longer. Further, the mechanism tends to be that a rise in bond yields provokes a response in other markets that prompts investors to take refuge in bonds again. That’s what is happening at present (perhaps in combination with some psychology that the failure to stick at the 3.2% level might mean that the top is in).
Combine all this with the growing sentiment that the Fed won’t be able to tighten as much as it wants to because a stagnating economy will get in the way, and you can see why bond yields are staging a decline. It’s not, unfortunately, a reason to believe that the selloff in stocks is nearly over. ..
Finally, here are a couple economic calendars and links for any / all still attempting to trade funDUHmental information flows … First, this from the best in the strategy biz is a LINKthru TO this calendar,
Congrats on your sons Bar Mitzvah