sellside observations for the week ahead (March 6th 2023) -- doubling down or stopping OUT? BONDS > stocks ... messages from yield curves
Good morning/noon/night (please choose one depending upon where you reside and whenever it is you maybe stumbling across this) … ZeroHedge on Friday (and the week just gone by)
Big Squeeze Breaks Stocks' Losing Streak As Bond Curve Screams Recession
… The ramp of the last two days has been on the back of a classic short-squeeze with 'most shorted' stocks spiking over 6%...
… The yield curve (2s30s) flattened even further this week nearing 100bps of inversion...
Source: Bloomberg
That is its most inverted ever...
“EVER” had me at hello … AND for the recession’ista — BBG (via ZH)
Key Yield Curve Signal Shows US Recession Due As Soon As June
AND I’m done here … nothing to see here folks, back to our cars. Shows over.
Lets go straight TO narrative creation machine known as Global Wall Street. You’ll be greeted this weekend by a note from earlier in the week from ARGUS — arguably one of the oldest most prestigious EQUITY research shops ‘out there’ and in this daily note,
… Our current recommended asset allocation model for moderate accounts is 67% growth assets, including 63% equities and 4% alternatives; and 33% fixed income, with a focus on opportunistic segments of the bond market.
AND there’s plenty more … BMO — best in BOND BIZ — stopped themselves outta longs (and steepeners) and Barclays … well, noting
… The bar for a 50bp hike in March is high... but attainable …
And then notes Q1 GDP tracking all of 0.2%. In a similarly lame fashion, JPM tells us they see little room for yields to rise further BUT lay out case for REMAINING NEUTRAL … aggressively FLAT and, well, I almost kinda respect that…I ALSO respect TD ‘doubling down on 10y LONGS’ …
There is something for everyone HERE … have at it ahead of tomorrow nights open AND certainly before HH testimony this week (good luck bidding on 3yy as that testimony is wrapping up!)
This coming Friday then, there will be another ALL IMPORTANT NFP which someone will say they told us so … will THIS be THE one showing weakness or will it be another head scratching barn burner?
I’ve NO idea BUT …
McClellan: Three Signs Employment Is Going to Take a Hit - Chart In Focus
… A similar message comes in the next chart from a longer term leading indication. Changes in the inflation rate lead to corresponding changes in the unemployment rate about 2 years later.
This revelation makes it all the more infuriating that just over 2 years ago, a lot of Federal Reserve officials were bemoaning the inflation rate being too low, below their made-up target of 2%. They actually wanted to get inflation up, oblivious to the reality that this would mean a rise in the unemployment rate, which hurts their “dual mandate”. Sadly, they got their wish.
This model calls for a dramatic rise in the unemployment rate, leading to a peak due in late 2024.
There is one more intermarket relationship that is interesting, and revelatory on this topic. It involves the stock market, and a different way of looking at employment.
The Employment-Population Ratio counts up every human alive in the U.S. (if you can believe the calculations) and compares that to how many people are working. It factors in not just unemployed people, but also infants, students, retirees, incarcerated, etc. It obviously fluctuates up and down with the economy, but also with changing demographics.
Those changing demographics are not as interesting to contemplate as the economic fluctuations, although demographics obviously do matter in the big picture. Covid threw these data for a loop, sending some people into an early retirement. Even though the official Unemployment Rate (U-3) is at an historic low at 3.4%, we still have not recovered to pre-Covid levels in terms of the Employment-Population Ratio.
The fascinating point addressed in this chart is that the movements in the Employment-Population Ratio tend to lag the movements of the stock market by about a year. This point is especially valid when it comes to stock market declines, which tend to lead to corresponding declines in the Employment-Population Ratio. Most interesting is how the bottoms in the stock market tend to get echoed about 12 months later, on average, in the Employment-Population Ratio.
So if the October 2022 stock market low really is the bottom for that bear market (a point still yet unproven), then we can reliably expect a bottom in the Employment-Population Ratio that would be due in October 2023. That is a little bit hard to contemplate, since we have not even seen a commencement of a decline in that ratio. And if the 2022 bear market actually is not over yet, then that pushes back the end point for the coming decline in the jobs market, which the Fed seems so eager to engineer, thinking that it will somehow help inflation…
Moving on then TO the week ahead AND for any / all (still)interested in trying to plan your trades and trade your plans in / around FUNduhMENTALs, here are a couple economic calendars and LINKS I used when I was closer to and IN ‘the game’.
First, this from the best in the strategy biz is a LINK thru TO this calendar,
Wells FARGOs version, if you prefer …
… and lets NOT forget EconOday links (among the best available and most useful IMO), GLOBALLY HERE and as far as US domestically (only) HERE …
Finally, here’s a live look in at me strategerizing what next for this ‘stack,
JUST KIDDING. Nothing here is meant as advice and I am NOT working to break anyone outta ANY jail … as far as you know and yes, that’s my story and I’m stickin’ with it…THAT is all for now. Enjoy whatever is left of YOUR weekend!