(USTs are higher/steeper outpacing EZ, UK on solid, albeit from a lower base, volumes)while WE slept; "Economy Not Falling Apart Yet. Keyword: Yet." -Prof Siegel
Good morning …
These are far from good but sure, go ahead and celebrate ‘beat’ if you wish … SOMES on Global Wall Street are willing to point out …
China: March data: the devil is in the details
We think mixed March data, on balance, suggest the recovery remains on track. While concerns about the sustainability of the housing and consumption recoveries are validated, we think leading indicators suggest recovery momentum still has support and offer some counterarguments for weaker inflation and home sales.
AND from China we’ll head back TO domestic shores and … here is a snapshot OF USTs as of 704a:
… HERE is what this shop says be behind the price action overnight…
… WHILE YOU SLEPT
Treasuries are higher (and the curve steeper) while outperforming EGB's and especially Gilts (5yr UK +5bp) this morning. DXY is lower (-0.4%) while front WTI futures are UNCHD this morning. Asian stocks were mixed despite China's GDP beat, EU and UK share markets are all higher (SX5E +0.65%) while ES futures are showing +0.4% here at 6:40am. Our overnight US rates flows saw another tight range during Asian hours with decent volumes seen in intermediates (3k FV block then). Overnight Treasury volume was solid (off a now lower base) at ~150% of average overall. 10's (251%), 5's (235%) and 30yrs (215%) saw more than double their average volumes overnight while 2yrs (66%) saw little turnover, apparently.
… and for some MORE of the news you can use » IGMs Press Picks for today (18 APR) to help weed thru the noise (some of which can be found over here at Finviz).
IGM and Finviz are good but hey now .. how ‘bout that good news from NY
ZH: 11-Sigma: NY Fed Mfg Survey Smashes Expectations With Biggest New Orders Surge In History
From some of the news to some of THE VIEWS you might be able to use… here’s what Global Wall St is sayin’ … First from yesterday morning, the best in the bond stratEgery biz,
BMO Morning: Tactically Minded:
…In outright terms, 10-year yields moved above the 3.50% level; although the magnetism of this point remains difficult to dispute. Stochastics continue to favor higher yields and we’re viewing any move beyond the 3.65% 40-day moving-average as a buying opportunity. Such a backup in rates in the near-term would be consistent with a sympathy downtrade on any accommodation for Wednesday’s 20-year auction of $12 bn. Moreover, as investors ready for the final round of official commentary before the pre-FOMC meeting period of radio silence, pricing out the potential for no-hike or an especially brief stay at terminal will provide the ‘position squaring’ narrative fuel as Fed expectations are further solidified. Environments such as the week ahead might have traditionally been associated with moments of calm and consolidation in US rates (our instinct to be sure), however the recent volatility in Treasuries and the headline-sensitivity to external market developments will leave us on guard and wary of, yet another, dramatic shift on the macro horizon.
About those 10yy peaking above 200dMA?
That was then and moving onward TO last nights great news from China …
UBS: Better than expected, as expected
As expected, China’s first quarter GDP was better than expected. Beijing’s rush to emphasize exports a few weeks ago may have helped flatter the numbers. Higher-frequency data showed consumers spending more, but continuing to save more as well. The spending data was helped by restaurant spending—the international spillover from service sector spending is not zero, but certainly less than spending on goods…
For somewhat longer form context of this business cycle and from one of the few bigger picture deeper thinkers out there who, in my view, really gets IT … EPB Research notes,
Yes, The Cycle Still Cycles...
raditional leading economic indicators place a heavy focus on data from the construction and manufacturing sectors.
Over the last several decades, the US economy has become less cyclical, with more service sector jobs and fewer construction and manufacturing payrolls.
The shrinking share of the cyclical economy has led many people to question the validity of traditional leading indicators that still focus on the construction and manufacturing sectors.
Construction and manufacturing jobs have declined from almost 40% of total employment to 13% today.
While the construction and manufacturing sectors are a relatively small share of total employment, the data proves that the cyclical economy still drives almost all the job losses around recessionary periods.
Even as the share of construction and manufacturing jobs declined, reaching 18% ahead of the 2001 recession, job losses from these two sectors during that recession were more than 100% of the total.
Construction and manufacturing jobs accounted for more than 50% of all job losses around the 2008 downturn, even as that recession morphed into a banking crisis and caused significant job losses in the financial services sector.
The following chart shows the level of job losses from the cyclical economy and services economy. Excluding the COVID recession for obvious business cycle reasons, job losses from the services sector exceeded job losses from the manufacturing and construction sectors zero times.
From Eric and deep thinking to some words of Prof STOCKS FOR THE LONG RUN Siegel noting,
Economy Not Falling Apart Yet. Keyword: Yet.
The market hoped the Federal Reserve would see progress on inflation and pause, but Friday’s data releases and comments from Fed Governor Christopher Waller are cementing fears of yet another 25-basis point hike. The market currently estimates 80-90% odds of a one and done hike at the May 3rd meeting. Hopefully it will be the last but that is uncertain, and you all know I didn’t think we even needed the last hike.
Our team has calculated an alternative measure of Consumer Price Index (CPI) inflation substituting current housing data for the shelter component of CPI. This metric of inflation with current housing data has fallen precipitously. The average inflation rate over the last nine months using current housing data has been negative and brings the trailing 12 months inflation to 2.8% instead of the 5.0% widely reported and followed by the Fed. Back in June 2022, this inflation with current housing data was averaging 1.2% a month over the prior six months. Again, now it is negative. The Fed’s fight against inflation should be over.
Both the Producer Price Index (PPI) and CPI reports earlier in the week spawned hope the Fed would “get it.” Austan Goolsbee, the new Chicago Fed President also made comments on CNBC showing he believes we should pause (pending hot data in next three weeks) and we could have our first voting dissenter in more than a year at the May meeting. Goolsbee rightly pointed to banking stress leading to tighter lending standards. While he is skeptical of Torsten Slok’s call, this tightening is effectively 150 basis points of further hikes, he can see it being between 25-75 basis points of an impact. These tighter lending conditions are doing work on inflation for the Fed and the Fed doesn’t need to compound the slowdown any further with more rate hikes.
But retail sales data on Friday was not that weak. The headline number was weak but the details underneath were actually stronger than expected with healthy implications for real GDP growth. We had a drop in the manufacturing part of production which is more important than the industrial production because the industrial production includes utilities dependent on weather. However, there were positive revisions to some of the prior data so again there wasn’t much ongoing weakness on the economic front.
The big shocker was Friday’s announcement of one-year inflationary expectations from the University of Michigan Consumer Sentiment Survey which jumped from 3.7% to 4.6%. This jump is one of the biggest on record. Is that a data error? If not an error, the survey could have been taken shortly after OPEC announced the supply cut for oil and headlines pointing to higher gasoline prices could have creeped into this survey for inflation expectations in the short run. The long-term inflation estimates did not increase. Nonetheless, the overall consumer sentiment did increase more than expected.
Friday’s data basically indicates the economy is not falling apart yet, with yet being the keyword. The data likely emboldens the Fed to make another rate hike. Very little of the data we’ve seen yet incorporates the impact of the banking stress on the real economy, which will take more time to see.
Before the May Fed meeting, we will get the ISM Manufacturing Index reports and regional manufacturing reports. Philadelphia and New York come in earliest. We will get manufacturing ISM data May 1st. On the day of the Fed decision, we will get ISM Services data. But we will not get the next payroll report before the meeting—which comes two days after the decision. I don't know whether the Fed can get a partial glimpse at this data.
Stocks have rallied earlier in the week with some expectations for the Fed pivot. The market says ‘one and done.’ Again, I expect significant cuts later in the year when it becomes apparent how much damage has been done to the economy and official inflation data starts dropping more significantly.
We’ve had some positive seasonal support for the markets in April—one of better months historically. But we are not far from the time of year known as ‘Sell in May and Go Away.’ Could this be a cyclical top in the market—setting up what looks like a triple top in the S&P 500 from some technicians? If it does not breakthrough on a key Fed pivot, I can see some further pressure in the short run.
Friday’s big bank earnings reports tell us nothing about how the regional banks will fare from funding issues later this year. The bank walk towards higher yielding Treasuries and money market funds continues and will likely get another 25-basis point booster shot in a few weeks. For now, it remains prudent to have a cautious near-term outlook on stocks, but I’m still very bullish longer term.
AND a few words from Bloomberg on stocks AND bonds,
… So far, so good for equities as investors dial down fears that March’s banking madness would substantially damage the wider economy. That, along with a positive start to earnings season, has sent the S&P 500 back toward the peaks reached in January, while benchmark government bond yields are climbing handily from the lows.
The sting in the tail is that yields on 10-year Treasuries are sitting at about 3.6%, and that’s an area which has already proved to be a tipping point for stocks in both December and February. Bonds are unwinding some of March’s gains as concerns fade about financial system strains, while the data continues to show a resilient economy with sticky inflation. That’s got traders just about pricing in a May hike and starting to ponder another one in June. Yields are likely to push higher from here, which offers a stern test for any investors expecting the S&P 500 to hit fresh highs for this year in the coming weeks.
In other words, bonds (10yy vs 3.60%) TO stocks be like,
Finally, while I’ve not YET seen the fund manager survey myself AND since we’re talking bonds and stocks, Lisa Abramowicz via Twitter,
Investor allocation to equities relative to bonds has dropped to its lowest level since 2009: BofA's global fund manager survey. If “consensus lust for recession” isn’t satisfied in Q2, the “pain trade” would be a rally in bond yields and bank stocks: BofA's Hartnett
Okie dokie … we get it. There’s an underweight of equities relative and once again, it was spotted on Twitter yest (AT LizYoungStrat) — a large (albeit somewhat less large) SHORT BASE,
Although it unwound a touch this past week, speculative positioning on S&P 500 futures remains the most bearish in over a decade.
Finally, reason number 8,234 of why I’m not about to do a podcast or audio / visual version of these notes,
AND … THAT is all for now. Off to the day job…