(USTs higher after weak UK ReSale TALES and moving on above average volumes)while WE slept; retail selling USTs, buying MUNIS and foreigners buyin' TBILLS

Nov 17, 2023

Good morning. As another week comes to a close, one thing seems to be certain and that IS (bond and all markets) volatility set to remain key catch phrase and portfolio risk into / through years end. With that in mind, a look at 10yy WEEKLY …

… As I see it, 4.34% (July peak) stands out to ME as does momentum (stochastics, bottom panel) slowly inching towards overBOUGHT on a longer-term (weekly) basis…

That said, as long as ‘flation DATA cooperates, data indicating the economy moderating and Fed pricing assumptions are not totally out of the realm of possibility, rates CAN be a viable alternative.

TINAs dead. Long live TINA?

Meanwhile, shortly AFTER hitting SEND yesterday morning, WMT earnings announcement came out, beat the street BUT …

CNBC: Walmart shares slide as retailer gives a cautious outlook about consumer spending (they DO employ over 2mil ‘Mericans…so as goes WMT so goes <insert something brilliant here, please>)
Walmart shares dropped as the company offered a cautious outlook on consumer spending.
The company beat fiscal third-quarter earnings and revenue estimates.
Revenue rose again on the strength of Walmart’s grocery and e-commerce businesses.
CNBC: Deflation could be coming this holiday season, Walmart CEO says (oh, ok)
… “In the U.S., we may be managing through a period of deflation in the months to come,” he said on the company’s Thursday earnings call. “And while that would put more unit pressure on us, we welcome it, because it’s better for our customers.”
ZH: Walmart Crashes On Disappointing Guidance, Warns That Consumer Spending Is Deteriorating

Combine all THAT ‘good news’ with some data from macro backdrop

ZH: Continuing Jobless Claims Surges To 2 Year High

And from some data along with WMT earnings CALL and deflation on the mind yesterday, comes some news overnight from Japan … the birthplace OF de/disinflation, ZERO rates, QE and more … BOJ Governor Kazuo Ueda said

Reuters: BOJ will debate easy-policy exit when inflation nears target
... we will consider ending yield curve control and negative interest rates if we can expect inflation to stably and sustainably meet our 2% target…

AND from all THAT, well, here we are and …

Reuters: Treasuries see first weekly outflow since Feb as investors buy stocks

Not 100% sure the take from that … weekly OUTFLOWS as rates are dropping in 3 of past 4wks and 10yy now just below 4.40%. Perpahs I’m overthinking it and so … here is a snapshot OF USTs as of 705a:

… HERE is what this shop says be behind the price action overnight…

… WHILE YOU SLEPT
Treasuries are higher this morning with the curve relatively unchanged after weak UK retail sales (link above). DXY is lower (-0.15%) while front WTI futures are higher (+1.25%). Asian stocks were mixed, EU and UK share markets are roughly +0.8% higher while ES futures are showing +0.2% here at 6:55am. Our overnight US rates flows saw a skew toward buying in the belly alongside fast$ interest in 3s5s steepeners. Overnight Treasury volume was solid at ~145% of average with 7yrs (241%) seeing some relatively elevated turnover overnight...
… Our last attachment this morning updates the latest MOF net foreign bond flow out of Japan. Japan had their half-year end at the end of Q3 and one can notice that the foreign bond flows from the country seem to be settling down a bit (higher lows, lower highs). Ed and I will be heading there after thanksgiving to take the pulse and I hope they'll be ready for, or accepting of, our bond-bullish excitement.

… and for some MORE of the news you can use » The Morning Hark - 17 Nov 2023 and IGMs Press Picks (who CONTINUES to be sportin’ that new, fresh look) in effort to to help weed thru the noise (some of which can be found over here at Finviz).

Moving from some of the news to some of THE VIEWS you might be able to use… here’s SOME of what Global Wall St is sayin’ …

Bespoke: Deflation?
Thanksgiving Dinner
Thanksgiving dinner should be a little easier on the wallet this year as the average cost of a “classic” dinner for ten declined 4.5% from last year. While lower, this year’s decline follows a record 20.1% increase in 2022, and relative to 2019, the average price of a Thanksgiving Dinner is up 25%. (Source: American Farm Bureau Federation)

Consumers are saying they plan to spend less this holiday season as well. In the Conference Board's latest Holiday Spending Survey, US consumers "plan to spend an average of $985 on holiday-related items in 2023, less than the $1,006 reported in 2022."

Finally, Walmart (WMT) reported earnings this morning and shares are trading down 8% on the day. The stock beat estimates, but CEO Doug McMillon said the company would likely be dealing with deflation in the coming months. When the largest big-box retailer in the country mentions "deflation," investors should listen.
BNP: Oil: Stopped out of long Jan 24 Brent, WTI positions
DB: Hold your horses
Equities have performed well in November, alongside a drop in bond yields & vol, and in the wake of solid Q3 results. Still, the risk asset picture doesn’t seem quite compelling enough to us to seriously challenge USD resilience…
… it’s hard to get overly excited about the overall equities outlook, and in that case the safety of the dollar holds appeal. US inflation may have calmed, but it seems premature to expect rates to fall much, if for no other reason than more easing of financial conditions could undermine progress on disinflation. And relative valuations aren’t helpful – global equities yield only 6¼% - not a lot higher than the US10y of almost 4½% (Figure 3).
FirstTrust: Data Watch - Industrial Production Declined 0.6% in October (only a cursory mention of deflating IMPORT prices … interesting. thinking if i were a bond BULL i’d be making a bigger deal of that — he’s clearly NOT)
… In employment news this morning, initial claims for jobless benefits rose 13,000 last week to 231,000. Meanwhile, continuing claims rose 32,000 to 1.865 million. Also today, import prices fell 0.8% in October while export prices declined 1.1%. In the past year, import prices are down 2.0% while export prices are down 4.9%. Finally, the NAHB Housing Index, a measure of homebuilder sentiment, fell to 34 in November from 40 in October. This is the fourth consecutive decline and coincides with a recent jump in mortgage rates. A reading below 50 signals that a greater number of builders view conditions as poor versus good.
Goldilocks: Jobless Claims Rise; Import Prices Below Expectations; Philly Fed Above Expectations; Boosting Q4 GDP Tracking to +1.8%
BOTTOM LINE: Initial jobless claims increased, and seasonal distortions likely boosted continuing claims. Import prices decreased by more than consensus expectations in October, and import prices ex-petroleum also declined. We left our October core and headline PCE inflation estimates unchanged at +0.16% (mom) and +0.05%, corresponding to year-over-year rates of +3.48% and +3.02%, respectively. The Philadelphia Fed manufacturing index increased by more than expected. The composition was weak, however, with the new orders, shipments, and employment components all declined. Industrial production declined 0.6% in October and manufacturing production decreased 0.7%, both below expectations. Auto production declined by less than we had previously assumed, and we boosted our Q4 GDP tracking estimate on a rounded basis by 0.1pp to +1.8% (qoq ar). Our domestic final sales forecast stands at +1.9% (qoq ar).
JEFF: Initial Jobless Claims Increase, Continuing Claims Hit Highest Level Since 2021
Key Points
■ In the week ended November 11th, 231k people filed for unemployment insurance, up 13k from the prior week's upwardly revised 218k (initially 217k). The consensus call for claims this week was 220k. This is the highest initial claims have been since August 19th.
■ Unadjusted claims rose 1.7k from the prior week to 215.9k, this is the highest level we have seen since August 5th.
■ The 4-week average for initial claims now sits at 220k. The last time the 4-week average was this high was the beginning of September.
■ Continuing claims continue to be a concern. This measure rose 32k in the week ended November 4th to 1.865M from a downwardly revised 1.833M . This week's continuing claims count is the highest in 102 weeks, needing to go all the way back to November 2021 to find a print that is higher (1.964k)…
UBS: Claims pick up, import prices drop
Initial unemployment insurance claims pick up; continuing claims keep marching upward
… Continuing claims for unemployment insurance increased 32K to 1865K in the week ending November 4, outpacing our (1855K) and consensus (1843K) expectations. As we have been writing, seasonal factors have been depressing the published claims data. We believe that trend began to unwind seven weeks ago, and is why the published series has picked up, as shown in the chart below. That general upward trend in the last few weeks should continue going forward and the published continuing claims series should march higher into year-end. We continue to estimate our alternative seasonal adjustment using pre-Covid seasonality for comparison. In that series, initial claims read in at 231K and continuing claims registered 1889K.
… Import prices drop in October, implying 12-month core PCE inflation at 3.45%
… Prices for international airfares in today’s import price release were a little lower than we had pencilled in for yesterday’s translation of October PCE prices from the CPI and PPI data. As a result we have lowered our projection 1bp and now project headline PCE prices rose 2bp in October while core PCE prices rose 13bp. These monthly changes would lead to 12-month headline PCE price inflation of 3.00% through October and core PCE prices inflation of 3.45%. 6-month annualized price changes would be 2.49% for headline PCE prices and 2.47% for core PCE prices.
UBS: Factory production falls; homebuilder sentiment still morose (only mentioning ‘cuz they used MOROSE in a sentence and should be given credit for that)
… Housing market index drops for a fourth consecutive month
Homebuilder sentiment looked gloomy again in November, falling 6 points to 34, below all estimates in the Bloomberg survey. Consensus expectations called for a flat reading of 40. According to the National Association of Home Builders, all three components of the index – present single-family sales, expectations, and prospective buyers traffic – fell between 5 and 6 points. With this print, the index has retraced nearly all of its gains yearto-date, as homebuyers feel the pinch of higher interest rates. Regional indexes for the Midwest, South and West all declined between 5 and 8 points, while only the Northeast saw an increase. The contract rate on the 30-year fixed-rate mortgage reported by the Mortgage Bankers Association, which we wrote about yesterday, remained flat this week at 7.61%. That is down from the peak of 7.90% reported the week of October 20 – the highest contract rate reported by the MBA since August 2000.
UBS (Donovan): More pressure on profit-led inflation?
… Yesterday’s US import price figures were part of a trend of lower inflation data. The US retailer WalMart reported that consumers were refusing to spend when confronted by price increases. This may signal the final stage of profit-led inflation, which is focused on retailers and consumer brands. Customers are convinced price increases are fair, and margin increases are smuggled in. When consumers realize that the price increases are not, in fact, fair this triggers an abrupt change of behavior.
Yardeni: A Whiff Of Deflation (‘Earl and WMT…)
If inflation was transitory, after all, what's next? We are expecting a resumption of the low inflation environment that occurred for many years prior to the Great Virus Crisis. However, there is already a strong whiff of deflation in the air. If that's what happens next, then the source will be China's economy, which is weighed down by its deflating property bubble and by its rapidly aging population. Consider the following recent developments:
(1) Slippery oil prices. The Brent January contract tumbled $3.76, or 4.6%, to settle at $77.42 a barrel (chart). US WTI crude and the global benchmark hit their lowest price levels since early July.
(2) Walmart's guy says the "D" word. Walmart CEO Doug McMillon said deflation could be coming as general merchandise and key grocery items, such as eggs, chicken and seafood get cheaper. “In the US, we may be managing through a period of deflation in the months to come,” he said on the company’s Thursday earnings call.
Yardeni: US Flow of Funds: Treasury International Capital System (TICS — i’m hand picking a couple of visuals which used to be of interest … specifically what foreign PRIVATE — ie NOT official accounts who may be managing their currencies but rather these are folks — private investors — who’s capital can and SHOULD go where it makes most sense)
… US Capital Inflows: T-Bills
… Foreign Purchases of Treasury Bonds & Notes

… And from Global Wall Street inbox TO the WWW,

AllStarCharts: Tracking a Bond Market Bounce (these guys been bearish if not mistaken …? when they say, “I won’t let my structural bearish outlook interfere…” they are telling you hey, forget what i said THEN — bearish — i’m bullish NOW (cuz price going up) … look, take it from a guy who was in sales … i GET IT … never wrong? that NEVER worked and clients ALWAYS see thru it … why i’m purposefully VAGUE or honest that I’ve NO opinion … but please, don’t give me this … HEADS I WIN, tails you lose nonsense…)
Bond investors must feel like it’s their lucky day.
Long-duration bonds are reaching new multi-month highs!
It finally looks as if a tactical bounce is underway for these safe havens-turned-risk assets…
The Treasury Bond ETF $TLT is coming off extreme oversold readings on the 14-day RSI, highlighted in the lower pane:
Over the past two years, oversold conditions at these levels have coincided with near-term bottoms for long-duration bonds.
Based on the chart, TLT looks poised for a mean-reverting rally.
Let’s zoom in…
Check out the daily chart carving out a potential six-week reversal formation:
I like trading TLT from the long side toward 99 — but only if it holds above the October pivot high at approximately 88.25. That’s the line in the sand.
All bets are off if it slips below those former highs.
The 30-year Treasury bond futures contract is forming a similar bottoming pattern.
A buy signal triggers on a decisive close above 115’08 for the 30-year, targeting 122.
To be clear, I’m not calling the bottom in the bond market because Treasury bonds stopped falling last month.
TLT retested its all-time lows less than a month ago. And the 30-year recently hit its lowest level since the summer of 2007.
Call me a bond bear, I don’t care. I study price and follow trends, and the long-term trend remains lower for bonds.
It’s that simple.
Regardless, I won’t let my structural bearish outlook interfere with taking a tactical swing from the long side.
Risk is well-defined, logical targets lie overhead at former polarity zones, and a mean-reversion bounce likely follows the recent sell-off.
And who knows? A bounce at current levels may turn into a sustained uptrend.
I’m not there yet, and neither are the charts.
But bonds are on the verge of flashing a buy signal.
Bloomberg: Investors Dive Into $4 Trillion Muni Bond Market, Boosting Trading Volume
Volume hit about 87,400 on Nov. 1, surpassing last year’s high
Yields and lack of supply have been boosting activity
… Year-to-date average daily municipal-bond trading volume is roughly 51,000, close to surpassing 2022 full-year average volume, data from MSRB show.
Hedgopia: Disinflation Trend In Consumer Inflation Intact, Even As Walmart Makes Ominous Comments As Relates to Demand
October’s CPI report showed continued disinflation since peaking last year at four-decade highs. Concurrently, Walmart, which commands a wide consumer reach with nearly $600 billion in annual sales, rather ominously commented that the company was more cautious than it was 90 days ago. Futures traders seem increasingly right in their rates outlook for next year.
October’s consumer price index (CPI) report confirmed the prevailing disinflation trend. Headline and core CPI increased at an annual rate of 3.2 percent and four percent last month. Last year, they were galloping ahead at 9.1 percent (June) and 6.6 percent (September), in that order…
In each of these, last year’s highs were at four-decade highs, so inflation has come down quite a bit. Although not at/near a level the Fed can declare ‘mission accomplished’, it increasingly feels like inflation is unlikely to show the kind of resurgence repeatedly seen in the ’70s (arrows in Chart 1)…
LPL; Treasury Yields Tumble
Key Takeaways:
Benchmark 10-year Treasury yields have plunged over 50 basis points (bps) after briefly surpassing 5% in late October. Reduced longer-term debt auctions, cooling inflation, slowing economic activity, and rising expectations for an end to the Federal Reserve’s (Fed) rate hiking campaign contributed to the pullback.
Yields are now trading below their 50-day moving average (dma), and a potential head and top shoulders top has formed. Technically, a close below 4.42% would break the neckline and leave 4.35% (prior highs/key Fibonacci retracement level) as the next key area of downside support.
After forming a negative divergence from yields, the Relative Strength Index (RSI) has dropped back into bearish territory, raising the odds for the highs on the 10-year being set last month.
Elevated short positions in 10-year Treasuries could trigger a short covering rally and/or increased volatility in the Treasury market.
… Another encouraging trajectory for equity markets can be found on the chart of 10-year Treasury yields, which pulled back through several areas of support following the CPI news. Yields are now trading back below their 50-dma for the first time since May, and a potential head and top shoulders formation has developed. The key word here is ‘potential’ as a close below 4.42% would be required to break the neckline. Additional downside support sets up at 4.35% (prior highs/key Fibonacci retracement level). From our perspective, a completed head and shoulders top formation followed by a break below 4.35% would significantly raise the odds of a top being set for 10-year yields.
…Short Squeeze Risk
The potential end to the uptrend in 10-year Treasury yields could be a significant problem for short positions (investors who are short Treasuries in anticipation of higher yields). According to the latest Commodity Futures Trading Commission (CFTC) data shown below, leveraged funds (typically hedge funds and other speculative asset managers) reported near-record net short positions in 10-year U.S. Treasuries. Asset managers, including institutional investors such as pension funds, endowments, mutual funds, and insurance companies are on the other side of the spectrum, holding long positions near record highs.
McClellan: Californians Caused Late October Dip (and Rebound) - Chart In Focus
… Blame Californians. I wrote here back on July 21, 2023 about how the IRS had changed the tax filing and payment deadlines for most of California, because of flooding rains in January on previously burned areas that led to a lot of flooding. This led to disaster declarations, and a ruling by the IRS that taxpayers in 51 of California's 54 counties would get an extension to October 16, 2023 for filing their 2022 taxes. That extension also included a delay in having to pay any amounts owed for 2022, plus all quarterly estimated payments in 2023.
Because of this extension, smart Californians held onto their money and their tax returns until just before the deadline, presumably earning at least money market interest rates on it, but denying those tax dollars to Uncle Sam. California has 15% of the US population, but it also has more than its share of millionaires who have the wherewithal (and the accountants) to do this sort of tax planning.
Why this relates to the stock market is that we have learned from the Fed's QE and QT episodes that having money in the banks is helpful for boosting stock prices. But when a bunch of Californians all wrote their tax payment checks to the IRS in October, that created a sudden drain in the liquidity pool. The result was an extra dip that the Annual Seasonal Pattern did not forecast.
Once those checks got cashed by the IRS, the money eventually found its way back into the banking system, resulting in a recovery for deposits in the commercial banks. And that helped to feed a recovery in the stock market, allowing prices to get back on track with the bullish phase of the Annual Seasonal Pattern.
We can see the effect of this in the tax collections data themselves, which are published in the Monthly Treasury Statement.
Much of 2023's monthly tax receipts data have been running behind 2022 levels. Part of that was due to 2022 being a down year for the stock market, so there were not as many capital gains to have to pay taxes on, and 2021 had a lot of capital gains tax payments because 2021 was a nice strong up year for the stock market.
We can see in this chart that the tax collections for October 2023 were much higher than past Octobers, and this is where that extension for California filers can really be seen. The Treasury Department and White House officials were quick to attribute October's strong tax collections to a supposedly improving economy, but it was really just a bunch of Californians taking advantage of the extension that was offered to them.
One positive for stock market investors is that even with October's more robust tax receipts, the U.S. government's total tax receipts are still pretty low as a percentage of GDP, and that is very bullish.
When taxes are running at 16% of GDP or less, the months that follow are historically very bullish for stock prices. By the same token, getting taxes up above 18% of GDP has brought an economic recession (and a bear market) every time it has happened. The mechanism for this is that by leaving a lot more money in the economy, the government is helping to allow that money to do things like lift stock prices. It is a bit of a problem for the escalating level of total federal debt, but that is a different problem.
Now that the California tax extension issue is behind us, the stock market can get back on the task of pushing itself higher as it usually does in November and December.
WolfST: Walmart: Consumers No Longer Willing to Pay Whatever. Prices of Goods Fall Broadly, as Inflation Shifted to Services
ZH: Money Market Fund Inflows Continue As Fed's Bank Bailout Fund Hits Another New High