(USTs LED LOWER by GILTS on below avg volumes)while WE slept
Good morning … A ‘double-top’ OR … ?
Momentum REMAINS overSOLD as we approach December cheaps and so, radar screens everywhere are watching how this unfolds … a trade up above December ‘cheaps’ makes a push to / thru 4% likely … What THEN, well scroll down (or see this past weekends version of what global wall st is thinking) … for whatever it’s worth, not too many willing to BTFD when we’re talkin’ 2yy, which we will be doing this afternoon around 1pm
… here is a snapshot OF USTs as of 716a:
… HERE is what another shop says be behind the price action overnight…
… WHILE YOU SLEPT
Treasuries are lower with Gilts leading both Treasuries and bunds down after solid upside surprises in the UK and EU PMI data this morning. DXY is modestly higher (+0.15%) while front WTI futures are higher too (+1.35%). Asian stocks were mixed, EU and UK share markets are all modestly in the red while ES futures show -0.7% here at 6:45am. Our overnight US rates flows were unavailable at publishing time and overnight Treasury volume was ~90% of average all across the curve this morning.… The daily chart of Treasury 2yrs shows the locally deep 'oversold' condition in momentum (lower panel) and the Shooting Star trend exhaustion signal traced out on Friday. Note too that a Shooting Star marketed the move high in yields (~4.80%) back in early November. Anyway, we expect a pretty hard-fought battle as/if 2's approach 4.80% support with Friday's rejection of local rate move highs perhaps a taste of what may come.
But zooming out to the weekly chart of Treasury 2yrs and weekly momentum (lower panel) shows the post-NFP bear move alive and well still with presumably plenty of medium-term bandwidth for rates to rise further from here- and perhaps beyond 4.80%, over time. The textbooks and experience says to always defer to the longer-term signals like that in this weekly chart (versus the daily)
… and for some MORE of the news you can use » IGMs Press Picks for today (21 FEB— and STILL SPORTING THAT NEW LOOK!!) to help weed thru the noise (some of which can be found over here at Finviz).
From some of the news to some VIEWS you might be able to use. From the holiday long weekend — Saturday…
Moving along … HERE are a few observations from Global Wall St inbox … There seems to be more dip buying (at least in thought and on paper — recommendations and narratives) than I would have thought. BMO, BAML, SG, TD to name a few. I was NOT as surprised to see some upward revision TO hike expectations (BAMLs Gapen and CSFB for example) as narratives get marked to market.
… and then from Monday, the anniversary of the (other) tea party, was a chart from Mike Wilson as we (equity risk premiums) are apparently entering ‘the death zone’, his full,
Weekly Warm-up: Into Thin Air
With the Equity Risk Premium at its lowest level since 2007, the risk-reward for stocks is extremely poor, particularly with a Fed that is likely far from done, and earnings expectations that are 10-20% too high. It's time to head back to base camp before the next guide down in earnings… As Exhibit 1 illustrates, the bond market disagrees with the dovish conclusion as rates have completely reversed the downtrend established in the final few months of 2022.
As we discussed in the Sunday Start this week, we think the primary reason for why stocks have been rallying since October has to do with the plentiful global liquidity that has been provided from the PBOC, BOJ and weaker USD rather than any dovish change from the Fed …
From stocks back TO the somewhat more dismal science where the same firm noted above offering,
The Weekly Worldview: New BoJ Governor, New Beginnings?
The testimony of Kazuo Ueda will provide insight into the next potential governor of the Bank of Japan. We hold our call for the removal of YCC this summer, but highlight that the new governor faces challenges assessing the monetary policy framework amidst volatile inflation dynamics.… Consequently, our Japan team maintains their view that the BoJ will eliminate the YCC at some point this summer, after Ueda-san takes office. Professor Ueda has been a critic of the current YCC framework, noting that it is prone to frequent large-scale speculation. His perspective is easily visible in the current shape of the yield curve, which has not really fixed itself after the adjustment in December (Exhibit 1, Exhibit 2). He has said that it is necessary to conduct a serious review of the unusual monetary easing framework that has lasted beyond the expectations of many people.
… The Japanese Yield Curve on December 21, 2022 had a "kink"
From there TO a large British operation asked yest,
What recessions?
Incoming data paint a picture of still-robust demand and persistent price pressures
We further raised our US and European growth forecasts last week and now see two extra rate hikes from the ECB (see below), because activity is stronger than expected and inflation stickier. Hot US CPI and retail sales data also increase risks of a higher terminal rate from the Fed than our assumption of 5.25-5.50% from June. Strong demand for labour is generating self-reinforcing rounds of income and spending increases that are proving tough to break.
In US rates, we caution that markets may have extrapolated strength in data too far out into the future. In Europe, we view medium-term risks as tilted to somewhat less aggressive pricing. In Japan, we recommend underweighting the 7-10y sector and buying gamma options to hedge against an early dismantling of YCC under the new BoJ leadership. In US credit, we pushed back our peak-spread expectations to the second half of 2023.
Look out this week for US consumer spending and income data for Jan (Fri). We expect a firming in core PCE price pressures, with a 0.47% m/m increase (4.4% y/y, a touch higher than consensus). More strong data could fuel fears of a hard landing, hurt risk sentiment and lift the dollar.
And then there’s this new paper by US academics says fixed income ETFs can suck liquidity out of the market in a crisis.
Finally, in addition TO a couple weekly economic calendars offered HERE, another resource from Dr. ED Yardeni HERE,
Short weeks always seem longer and this one will be NO different especially given liquidity events today, tomorrow and Thursday. Get those bids in early and often … THAT is all for now. Off to the day job…