Good morning … First a chart from yesterday’s CPI which caught MY eye,
ZH has somewhat more on the “WTF!” below but hey … how for now, hey … how about that 10yr auction?
Want 30s?
Momentum (stochastics / bottom panel) remain a BEARISH (ie higher yield)input so perhaps a concession needed although, one has been offered over past several sessions.
… here is a snapshot OF USTs as of 722a:
… HERE is what another shop says be behind the price action overnight…
… WHILE YOU SLEPT
Treasuries are lower and the curve modestly steeper after China's trade data and Australia's jobs numbers came better than expected while supply in the UK, Italy and Spain and the US (30yrs) may be weighing too. DXY is modestly lower (-0.17%) while front WTI futures are -0.55% (see today's attachment). Asian stocks were mixed, EU and UK share markets are mixed too while ES futures are showing +0.1% here at 7:10am. Our overnight US rates flows were limited in Asian hours amid a further range trade with better selling noted (real$ in the front-end, fast$ in intermediates). In London's AM hours, more fast$ selling in intermediates was seen amid the supply there with ongoing demand noted in the very front-end via T-Bills. Overnight Treasury volume was ~110% of average overall with elevated activity spotted in 10's (184%), matching our flows.
… and for some MORE of the news you can use » IGMs Press Picks for today (13 APR) to help weed thru the noise (some of which can be found over here at Finviz).
I’d be remiss if I didn’t mention a couple from ZH where yesterday we learned yesterday … first on CPI
Headline CPI Tumbles More Than Expected But Real Wages Decline For 24th Straight Month
Which then led to
Ultimately ZH
"Probably Means The Fed Is Done Hiking": Wall Street Reacts To "Cooler" CPI Report
AND perhaps MOST interestingly, a turn of events into and after CPI print
Who Knew What & When? Treasury Futures Soared Ahead Of CPI, BLS Denies Leaks
AND completely unrelated TO the CPI — post / pre chaos — but equally fun,
Uh, folks, wage growth - as in actual tracked wages not that BLS garbage - is in freefall: "growth in after-tax wages and salaries, based on BofA deposit data, slowed to just 2% YoY on a 3MMA basis, down from the peak of 8% in April 2022, the lowest since June 2020."
Turning away from just rehashing ZH and from some of the news to some of THE VIEWS you might be able to use… here’s what Global Wall St is sayin’ … POST OP CPI … narratives which, as we know, are always following price,
GS: Monthly Core CPI Inflation Slows as Shelter Stepdown Finally Arrives, Removing June Hike from Our Fed Call
BOTTOM LINE: March core CPI rose 0.38%, a touch below consensus and a 4-month low. More importantly, monthly shelter inflation fell sharply. We expect the shelter trend to be lower going forward because we believe the mark-to-market effect of existing tenant rents resetting higher post-pandemic is now in its advanced stages. Core services prices excluding rent and OER rose a solid 0.40% on strength in categories with pent-up price pressures like car insurance and daycare. We are changing our Fed call to remove the hike we had previously expected in June. We continue to expect a hike in May, which would raise the target range to 5-5.25%.
AND for ZH spin / snark (sorry), see, “After Softer CPI Print, Goldman Changes Fed Call, No Longer Expects June Rate Hike”
There is, as always, another side of the very same coin and so, a large German bank reiterates,
March CPI recap: Better, but far from swaying Fed off tightening bias
The March CPI data came almost exactly in line with our forecasts, with headline and core rising by 0.1% and 0.4% respectively from February. In general, the composition of the data prints also came in largely as expected, with strength in most goods components combined with still somewhat elevated rental prints, declining medical services prices, and gains in other core services. Taken together, the year-over-year headline inflation rate fell a percentage point to 5.0%, while that for core ticked up a tenth to 5.6%.
In terms of our inflation forecasts, they remain roughly unchanged, with core CPI declining over 2023 to 3.3% Q4/Q4 before continuing to fall to 2.5% by the end of 2024 and remaining there through 2025. Core PCE follows a similar trajectory at 3.5%, 2.2%, and 2.1%. The corresponding forecasts for headline are 2.9%, 2.5% and 2.5% for CPI and 3.1% 2.2% and 2.2% for PCE.
While the slower pace of rent gains is a tentative bright spot, near-term price pressures from goods and labor-sensitive services should result in Fed officials maintaining their tightening bias. Hence, we continue to expect a 25bp hike at the May 3 meeting to 5.1%, with the Fed holding the policy rate steady at that level though year-end.
Wells Fargo,
March CPI: Glass Half Something
Summary
For the inflation optimists out there, the March CPI report delivered good news with total prices rising by the smallest amount in nine months and hints that core services inflation is starting to moderate. However, for the inflation pessimists, the latest CPI report shows the recent underlying trend in price growth remains far too high, with the core CPI increasing at more than a 5% annualized pace the past three months.Consumer prices increased just 0.1% in March. Falling prices for energy and flat prices for food helped restrain the increase in the headline index. Excluding food and energy, core consumer prices rose 0.4% in March and 5.6% over the past year.
Core consumer prices continue to grow much faster than the Federal Reserve's target, but we believe slower inflation is coming in the months ahead as the economy cools and finds better balance in a post-pandemic world. We do not think today's report materially changes the outlook for U.S. monetary policy. We still expect a 25 bps rate hike from the FOMC at the conclusion of its next meeting on May 3. Past May, the outlook is increasingly uncertain, but we think the most likely outcome is for the FOMC to keep the federal funds rate steady for an extended period of time.
From CPI I’m turning TO the FOMC minutes and first, speaking TO the faction out there thinking PAUSE and perhaps even rate CUTS, a tweet from BBG reporter Matt Boesler,
"Given their assessment of the potential economic effects of the recent banking-sector developments, the staff's projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years"
Interestingly, though, he goes on to tweet,
Looking back at the transcript of the Fed chair's post-meeting press conference, it is somewhat remarkable that this was not disclosed
And Matt points out HOW JPOW answered the recession question via the transcript of the presser — HERE is that link
For somewhat more, a colleague of Matt at Bloomberg offers this
… Inflation came in strong enough for traders to stick with bets the Federal Reserve is going to hike interest rates again in May. While it’s tempting to decide that such a move is a lock now the last major piece of the traditional data puzzle is in place, that could be a misguided approach. The minutes of the last Federal Open Market Committee meeting show plenty of concern about the banking crisis that was playing out at the time and the potential longer-term impact. Those are matters that some of the less hawkish Fed speakers over the past week have referenced too, such as Chicago President Austan Goolsbee, in signaling that the central bank may not need to do much more.
A look at the Fed’s own data underscores such concerns, with actual lending dropping over the past two weeks. The central bank’s survey of senior loan officers at banks had already flashed a serious warning that economic pain was approaching, with the number reporting some tightening of standards jumping above 40% to levels only seen this century before or during recessions. The next release should come in time for the Fed’s next meeting, and if recent trends continue, that may make fresh Fed hikes less likely than most are now anticipating.
With this as the backdrop, a rather large British operation
Federal Reserve Commentary: March minutes: Outlook uncertain, but higher rate and lower growth likely
The March minutes reveal that the FOMC was eyeing a higher rate path due to strong data flow, but viewed the expected tighter credit conditions resulting from the banking turmoil as standing in for additional rate hikes. We maintain our call for a 25bp hike in May.
Moving along, there are some updated GLOBAL VIEWS shared by Goldilocks last night,
Global Views: The Home Stretch
… Q: So is the world economy set for a soft landing?
A: Not across the board. On the one hand, Russia’s war against Ukraine has pushed both countries, as well as some of their neighbors, into a slump. On the other hand, China is in a different stage of the cycle altogether and our 6.0% GDP growth forecast for 2023 remains well above consensus.But most other major economies need a landing from the post-covid inflation surge, and we expect it to be mostly soft. As we noted late last year, this cycle is different from prior high-inflation periods in ways that should continue to make it much easier to bring down inflation without a recession. Inflation expectations remain much more anchored; temporary factors account for much more of the earlier price inflation runup; and labor markets should prove much easier to rebalance via reduced job openings and without a large—or perhaps, any—hit to employment.
Q: What are the implications for asset market returns?
A: Not as stellar as one might expect. From a tactical perspective, the equity market already seems to discount quite a rosy scenario, while the rates market looks downbeat. But more lasting headwinds are also at play. The flip side of sustained high employment levels is that the room for both rate cuts and profit margin expansion is fundamentally limited, at a time when the continued risk of geopolitical conflict may require a higher risk premium than what is currently priced. Consistent with these observations, our rates strategists expect higher yields and our equity strategists see little or no upside from current levels. However, our credit strategists see further room for spreads to normalize in the near term as banking stresses abate, and our commodity strategists expect the rebound in oil prices on the back of the OPEC+ production cut to continue.
Make of that whatever YOU can.
Finally, a couple things for other visual learners out there like myself. First up, a closing commentary from best in the biz — BMO — noting that,
Real Money Longest Since Oct 2010
… Thursday’s session holds little promise to deliver anything that one might aptly characterize as paradigm shifting. PPI comes in the wake of known consumer inflation; with the caveat that last month the disappointing producer price index added to the bullish sentiment. Similarly, initial jobless claims surprised on the upside at the last report – although seasonality and the related adjustments were a consideration, thereby reducing its tradability. There is already a concession being established for the long bond reopening; a dynamic that leaves us more constructive on the prospects for the takedown; especially now that the FOMC’s minutes have been absorbed and volatility has subsided. Real money is biased long as evidence by the SMRA survey’s 100.9% asset-weighted duration measure; this is the longest for this measure since Oct 2010 (see attached chart on SMRA)
FINALLY — a weekly chartpack from a large Swiss operation,
AND … THAT is all for now. Off to the day job…
Great work keep it up