sellside observations for the week ahead (March 27th); remain calm all is well. when the facts change ... narratives follow price action.
Good morning/noon/night (please choose one depending upon where you reside and whenever it is you maybe stumbling across this spot on the intertubes …
CNBC: Nearly $100 billion in deposits pulled from banks; officials call system ‘sound and resilient’
CNBC: Deutsche Bank is not the next Credit Suisse, analysts say as panic spreads
Feelin’ better yet? Never FEAR, JY is here and met with her FSCO crew? I’ll just post this
AND the results arriving into inboxes across the land just AFTER markets closed (413p … HERE),
Feel better? Frankly all this makes me think … sorry for this but I gotta,
Oh, nevermind … Lets go TO narrative creation machine known as Global Wall Street. This weekend you’ll be greeted by more than one adjusted rate forecast further proving idea of narratives FOLLOWING price action … A few observations to note,
BAML kicks us of down the road of adjusted f’casts — when facts change, etc, ultimately making all THIS STUFF relatively useless soon after the ink dries, “… Rate forecasts: trimming lower … “ and so … READ all ‘bout em?
Goldilocks - its different this time (another fan fav) but this time from a yield curve perspective whereby, “… We note that 2s10s yield curve steepeners still have substantial carry costs, making timing the trade correctly an important consideration. If, for instance, the Fed cuts by a similar magnitude to what markets are pricing, but significantly earlier, steepeners would perform fairly well. Historically, recessions have followed within a few months of yield curve steepening similar in magnitude to what we have seen in recent weeks, offering support to such expressions. However, we note the recession dataset we use is small, and the starting point for curve steepening this cycle is unusual—with curves being at their most inverted in over a generation…”
JEFF - sometimes a title DOES tell you what you need to know and that IS the case this weekend as JEFF writes, “The Coming Student Loan Cliff”
MS - another example of how narratives FOLLOWS price, this weekend we are ‘taught’ how it is that, “Tighter credit, lower growth” (thanks Ellen, didn’t realize that was what was going on … have you run into Janet lately, perhaps YOU might teach her a few things and first up on list is how to NOT say anything?) — see the FULL 9pg NOTE FOR ALL THE DEFENSE of how / why firm NOW sees lower growth back half THIS year and, “…the additional loan growth deceleration we expect lowers our GDP growth forecasts by 10bp to 0.3% 4Q/4Q this year and 20bp in 2024 to 1.0%.” … There we go again, NARRATIVES following the price action!
TD following just about everyone else AND changing tune (to some degree) along with markets … they have been long 10s to their credit, and still, they are, “Changing Treasury Forecasts…Our year-end forecast for 10s remains the same at 2.75%, but we lower our forecasts for front-end rates…”
< interjection of theme — how NARRATIVES follow price action — so called allstars of charts, on March 23rd, “It’s Time To Get Bonds Back into the Fold” >
Moving right along and in addition TO Global Wall Streets ‘official’ narrative creation machine which again, follows the price action (are you catching the message here?), there are a few OTHER things / LINKS to some items from the intertubes I will spend some more time with on this rainy day / weekend here in the NE.
First from ECONODAY,
And from some KNOWLEDGE LEADERS (Capital) with a message from Japan,
What are JGBs Trying to Tell Us?
… Where this gets more interesting is in looking at the 10-Year UST-JGB spread, shown below compared to the JPY/USD spot.
In its meeting yesterday, the US Fed demonstrated its resolve to maintain focus on price control and made a show of not being (too) rattled by troubled lenders, but the UST-JGB yield spread calls this into question. If investors believe that the Fed will continue tightening, then this spread should be widening, not narrowing as has been over the past month. Further, price action in the JPY/USD FX market has served to validate an inverted US yield curve. If what we see here is to be believed, and the Fed is soon to wax dovish, then the 10-Year UST-JGB spread could continue to narrow, which would in turn support continued yen strength against the US Dollar.
On TO Russell Clark on BONDS … agree or not, I found his conclusions thought provoking,
… TLT largest position is 1.8 2/51 Treasury. Blackrock is the second largest owner after the Federal Reserve. Vanguard is the third largest and Japanese GPIF is 4th largest. Easy to see an environment where all 4 are sellers.
TLT could be a trade, but I think it is still a short.
He’s NOT as lunatic fringe as you might think … check out his latest conversation on
Now, setting that specific US Treasury issue and overall concept aside, Dr Ed BOND VIGILANTE Yardeni earlier this week asked an interesting question (and had decent chart of the curve),
Can We Bank on Yellen & Powell?
… Interest rate risk has turned out to be a much bigger problem than credit risk for the banks during the current monetary policy tightening cycle. Then again, as long as the securities are held to maturity, unrealized losses don't have to be realized unless the banks have to sell them if they are faced with bank runs. In any case, they are forced to raise their deposit rates to be competitive with money market rates to halt disintermediation. Doing so hits their profitability since they can't raise interest rates on all their current loans.
With the benefit of hindsight, the era of free money under Fed Chairs Ben Bernanke, Janet Yellen, and Jerome Powell created a big bubble in the banks' bond portfolios. The Treasury contributed to the bubble by issuing lots of bonds that the banks purchased at much higher prices.
The inverted yield curve has been predicting since last summer that something will break in the financial system as a result of the Fed's abrupt pivoting away from free money. Silicon Valley Bank is that broken something that has raised concern about small community and regional banks (chart).
… Finally, we would feel better if both Yellen and Powell wouldn't feel the need to assure us that the banking system is sound.
Can I get an AMEN!??
Another CHART which caught my eye — TLT set to close ABOVE 200dMA (Russ, you watchin’?)
Moving on then TO conclude this rather lengthy weekend story about nothing and looking 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 …
THAT is all for now. Enjoy whatever is left of YOUR weekend and lets HOPE JYs FSOC meeting yesterday afternoon means we’ll NOT be meeting here before markets open …