(USTs mixed/flatter on below avg volumes)while WE slept; CONSUMERS -- credit data shows high CC debt and low savings rate; #gotHOLIDAYsales? RATES REVERSING
… Bottom line: the state of the US consumer is dire and getting worse, and as shown in the next chart, credit card debt hits a record high just as the personal savings rate hit a 17 year low. The catastrophic implications for the US economy is clear.
… here is a snapshot OF USTs as of 705a:
… HEREis what another shop says be behind the price action overnight…
… WHILE YOU SLEPT Treasuries are mixed and the curve has pivoted flatter around a little-changed 20-year point. DXY is modestly higher (+0.15%) while front WTI futures are higher too (+1.8%). Asian stocks were modestly lower save for strength seen in the Hang Seng (+3.38%), EU and UK share markets are modestly lower on balance while ES futures are showing +0.25% here at 7am. Our Asian session rates flows saw a downtick in prices after strength in NY yesterday. Client flows were limited where some chunky block sales in TY's and FV's were tone-setters in their hours. Overnight Treasury volume was ~90% of average overall.
UST 30yrs, weekly: It's via the medium-term, weekly charts (which flipped bullishly for most/all tenors roughly 4-5 weeks ago- with evidence of Bullish Divergence in all of them) that the bullish phase shift in rates first became apparent- at least to us. TLT's showed the turn, Tsy 5's did too and so did front-end benchmarks like 2's and the 1y1y rate, as we've periodically illustrated since then. So a detectable change in weather passed over the rates fleet back in early November which Fed watchers might have struggled to detect (5's opening today -33bp from their Nov. 30th peak after Powell's speech). Importantly, all the weekly momentum signals still guide bullishly while being days and/or many basis points away from overbought readings or indications that positioning has gotten too 1-way long.The message is thus: stay on starboard tack (lower rate bias), for now. Moreover: a dispassionate technical observer might look at this chart and think: ~3.00% (~ the summer range lows) here we come...
… and for some MORE of the news you can use » IGMs Press Picks for today (8 DEC) to help weed thru the noise (some of which can be found over here at Finviz).
In as far as a few concepts and narratives which capturing the hearts and minds of Global Wall Street as year winds down … these seemed worthy of mention.
First up, with Thing 2 set to work midnight shift tomorrow night — Target staying open now as the holidays closing in — I thought Goldilocks on holiday spending interesting, and as they note,
Two weeks into the holiday shopping season, we take stock of the preliminary indicators from Big Data and industry sources.
Across Adobe’s panel of online retailers, nominal spending over Black Friday weekend and Cyber Monday rose 4.0% year-on-year, well below the double-digit pace throughout the 2010s and the 10.8% pace of ecommerce sales growth in Q3 of this year. Because of the importance of online shopping, the Adobe data are a useful predictor of the November retail sales report (correlation +0.58 since 2012) and argue for a below-trend reading in 2022. Turning to brick and mortar, Fiserv credit card spending and Redbook’s department store panel indicate a pickup in spending growth during Black Friday week but only modest sequential growth for November as a whole.
We also believe the previously reported strength in October retail sales creates a high hurdle for incremental spending growth in November and December, especially because October spending benefitted from stimulus checks in California ($6.2bn of Middle Class Tax Refund payments, two-thirds of which were in October). Taken together, we are assuming a 0.2% decline in November retail control (mom sa) and a flat reading for December. We will finalize our forecasts as the remaining nowcast inputs become available.
In terms of consumer prices, normalizing inventory levels have catalyzed the return of discounting. Both Adobe data and our retail analysts suggest a more promotional environment this year, and our analysts noted that stores were “very well stocked,” in contrast to shortages of consumer electronics and some cosmetics and apparel items during the 2021 holiday season.
The Animal Spirits Index (ASI) modestly increased to -0.18 in November, up from -0.21 in October. Despite the increase, the ASI has been negative for 11 consecutive months, or the entirety of 2022 thus far. The streak of negative readings suggests confidence in the economy has broadly deteriorated…
Yield Spread: The spread between the yield on the three-month Treasury bill and the 10-year Treasury note has been on a trend decline since May and first turned negative in mid-October. Our own yield curve forecast signals turbulent times are ahead, aligning with our expectation for a recession starting next year.
S&P 500 Index: The S&P 500 has taken a hit this year after peaking in December 2021. Year-to-date, the index is down roughly 11% and contributed negatively to the ASI in six of the past 11 months—the most negative monthly contributions in a given year since 2015…
Animal spirits down but far from out … perhaps 2023 a better year?
…Up until this year, the one major question I was always asked was: Where can I find yield in the bond market? To be sure, with U.S. rates being dragged down by zero interest rate (ZIRP)central bank policies, negative sovereign debt yields abroad and a lack of inflation, to name a few key factors, investors had been left with historically low yield levels, a new normal for the bond market.
UST & U.S. IG Corporate: Yield to Worst
…Conclusion From an investment backdrop, investors now have some definitive options within the fixed income arena. In fact, even though Fed Chairman Powell has signaled the potential for some slowing in the pace of rate hikes, perhaps as soon as next week’s FOMC meeting, he also emphasized that rates could be heading higher for longer, with no apparent appetite to reverse course anytime soon. So, if I was asked the aforementioned question about where to find yield in the bond market now, my answer has now become a much easier one.
… The dollar's previously huge risk premium now looks far less stretched (chart 1), also accompanied by a shift in speculative positioning to neutral (chart 2). The question now is can the USD embark on a more sustained downtrend? Not yet is our answer.
First, from a market perspective there is no signal that the dollar’s anti-risk parity regime is changing. The USD continues to behave as the perfect hedge to a long bond/equity portfolio with little pressure on the market’s dollar cash allocation to shift as it is fulfilling its intended purpose (chart 3)…
With THAT (USD) related to FI visual in mind, something a bit more mundane but perhaps MORE funTERtaining — Chris Kimble asks,
… a long-term “quarterly” chart of the 10-year treasury bond yield. You can see how yields recorded the lowest quarterly close at .68% before staging a huge rally.
This quarter, however, bond yields hit dual resistance at the falling trend line and 23% Fibonacci level at (1) and reversed lower.
But this wasn’t any old reversal… The 10-year bond yield could be creating the largest bearish reversal pattern in yield history at (1).
Higher interest rates have rattled the financial markets hard so a reversal lower is welcome news for consumers and stock market bulls.
