Good morning / afternoon / evening - please choose whichever one which best describes when ever it may be that YOU are stumbling across this weekends note…
I begin this weekends odyssey looking at the belly of the beast — 5yy WEEKLY — which ended the week about UNCH. Actually they were ~2bps HIGHER than where they ended the week prior and still suggesting a bullish TLINE break …
5yy WEEKLY: support up ~4.65 (dip-OR-tunity) and resistance at 4.17 (50dMA)…
… and as you can see, i’ve added some annotation, WEEKLY momentum remains bullish … stay WITH or buy dips (add, see MS below)
… This in mind, I’d still urge CAUTION on a shorter (ie DAILY) basis. Look at 10s and you’ll see they remain in / around 4.50% — clearly an inflection point and I’m not alone in watching — and there you’ll find a more BEARISH (momentum)setup.
I’ll look at 3s, 10s and 30s in week ahead as they are up for auction on Tue, Wed and Thursday and this can / will / SHOULD cut both ways.
Supply concerns could weigh on prices / yields and a concession may be warranted / needed.
With DOGE and cost cutting in effort to help convey message of more fiscally sound approach going forward MAY in fact usher in DEMAND (ie supply creating its own demand) …
Ultimately, as is the case with stocks relying on earnings for direction, rates complex may just be needing further input from … flation … which we’ll get an update in the week just ahead.
I’ll spare much more of my own view for now but to be sure, a bullish belly setup in medium term exists and is acknowledged. DipORtunities can and will be bought. I’ll have more as days / weeks progress but for now, will head to the video tape and offer several links as is customary, the day / weekend just after NFP…
NFP … bad is good is bad? Versa Vica? Somethin’ like that … Light h’line but … robust revisions (2m net and benchmark were less bad than previously thought), a lower URATE (and an INCREASE in participation…) FIRMWAGES make this, well, another funTERtaining one, at least for the narrative creators out there…
ZH: January Jobs Growth Below Estimates Amid Massive Revisions Which Trim Unemployment, Reduce Historic Payrolls
… And while we will do a thorough breakdown of these numbers, perhaps the biggest surprise was in the wage department, because according to the BLS, average hourly earnings printed at 4.1% YoY, beating soundly the 3.8% estimates and unchanged from an upward revised December print (which was 3.9% before).
Developing…
ZH: Lost In Today's Job Revision Chaos: Over 1 Million Foreign-Born Workers Found A Job... And No Native Borns
Bonddad: January jobs report: annual revisions clear up some big discrepancies, but monthly numbers are close to pre-recessionary
CalculatedRISK: January Employment Report: 143 thousand Jobs, 4.0% Unemployment Rate
WOLFST: Huge Upward Adjustment to Employment & Labor Force as Wave of Immigrants is Finally Included, Unemployment Drops, Wage Growth Accelerates: The Annual
The Fed, after complaining about missing immigrants in labor market data, now has further support for its pivot to wait-and-see.
… Alrighty, then. Moving on from NFP and to the other point of data helping clarify (? no, not really but…)
ZH: Democrats Send UMich Inflation Expectations Exploding Higher In Feb
I’ll move on TO some of Global Walls WEEKLY narratives — SOME of THE VIEWS you might be able to use. A few things which stood out to ME this weekend from the inbox
January's employment data suggest that the labor market is on a stronger trajectory than most expected, with the 3mma of job gains re-accelerating and the unemployment rate turning further downward. California wildfires likely weighed somewhat on January's estimates.
Labor market momentum accelerated in January: the trend rate of hiring rose, the unemployment rate dropped despite higher participation, and wage growth picked up.
The acceleration in labor demand suggests that monetary policy is not currently restrictive. In an environment of strong and sustained labor demand and declining labor supply growth due to immigration policy changes, restrictive monetary policy is necessary.
Our base case remains for the FOMC to remain on hold through mid-2026. However, if strong labor demand continues, we think this would significantly increase the risk of the FOMC needing to hike rates this year.
… More important for the overall labor market outlook were the details of the household survey, which showed another tenth decline in the U-3 unemployment rate to 4.0% – the lowest since May 2024. The drop in the unemployment rate was more impressive given the one-tenth increase in the labor force participation rate (62.6% vs. 62.5%). In addition, both prime-age labor force participation (83.5% vs. 83.4%) and the prime-age employment to population ratio (80.7% vs. 80.5%) edged higher.
More importantly, the U-3 unemployment rate fell to 4.0% and U-6 was unchanged at 7.5%
In summary, the latest employment data continued to show improving underlying trends with the three-month average gains for headline (237k) and private payrolls (209k) solidly above their six-month averages of 178k and 145k, respectively. In addition, the three-month diffusion index of job gains (64.8 vs 58.4) points to a broadening out of hiring across sectors. Most importantly, the drop in the unemployment rate in the household survey should alleviate any lingering Fed fears about elevated risks to the labor market – reinforcing our long-held view of the Fed remaining on hold this year (see "Trump II: Growth too fast, inflation too furious for Fed cuts ")…
First Trust: Nonfarm Payrolls Increased 143,000 in January
…The best news for workers was that average hourly earnings increased 0.5% in January and are up 4.1% from a year ago, outpacing inflation. The problem is that the Federal Reserve likely wants to see slower growth in wages to be confident about reaching its inflation goal of 2.0%. In turn, that means no rate cuts for at least the next couple of meetings. In other recent news on the job market, unemployment claims rose 11,000 last week to 219,000; continuing claims increased 36,000 to 1.886 million. These figures are consistent with continued job growth in February…
A respectable outcome for January job creation with fewer than feared downward revisions to historical data have cemented expectations that the Fed will not be cutting rates imminently. There are still lingering concerns about the quality of jobs being added, but an improving trend in jobs creation since late summer means the Fed will hold rates until 3Q
MS: US Economics: January employment: Temporary drag from weather
Soft payrolls (143k), a shorter work week, and solid hourly earnings were likely driven by weather and wildfires. Revisions pointed to a lower trough in hiring last summer and a sharper recovery thereafter. Overall, net of all effects, the labor market still looks solid, if not a touch tight.
143,000 jobs were added in January, in the middle of our and consensus expectations (175,000 and 100,000, respectively).
The unemployment rate dipped lower to 4.0% (after 4.1% in Dec and 4.2% in Nov).
The net two-month revision to payrolls was +100,000, leaving the 6 month average pace at 178,000. The 3-month average is even stronger at 237,000.
RBC: U.S. unemployment rate ticked lower in January
The Bottom Line:
The exceptional run of U.S. labour market strength persisted in January, even with a small miss in payroll employment gain (143k vs. consensus 170k) and large and negative backward benchmark revisions to the level of payroll employment.
The unemployment rate dropped to 4% (and would have been 3.9% without annual adjustments to the population controls) and wage growth among private sectors remained elevated.
Today's report confirms our expectations that a stable and strong U.S. jobs market does not need support from further Fed rate cuts. We continue to expect the central bank will hold Fed Funds steady at the current 4.25% - 4.5% range throughout 2025.
WELLS FARGO: January Employment: Labor Market Looking Good After Revisions Look Back
…On balance, today's employment data, which included annual revisions, should give the FOMC confidence that it can maintain the federal funds rate at its current level for the foreseeable future. A small swoon in the labor market occurred throughout the first half of 2024 as nonfarm payroll growth slowed sharply and the unemployment rate ground modestly higher. But, the more recent data are indicative of a labor market that has regained its footing. This suggests that the tail risk of a sharp deterioration in the labor market has diminished, and as a result the FOMC can wait to see how the Q1 inflation data and economic policymaking play out before taking further action on the federal funds rate…
Now in as far as regularly scheduled programming (where some NFP recaps / victory laps may still lurk) …
Rates: Trade duties, honor, country US: Tariffs pose downside growth risk & justify our soft long duration bias. Fed hold + downside growth risks justify flatter front end, we like M5/Z6 flatteners…
…Bottom line: We expect the Fed to remain on hold but tariffs pose downside risks to growth. We like M5/Z6 flatteners because of potential for the belly to outperform as the Fed path is adjusted downward 2-3yrs ahead with higher growth concerns. We turn neutral on long-end spreads due to current de-regulatory momentum.
…Technicals: Head and shoulder top took US10Y yield lower The short-term top patterns in US yields we flagged in late January have led to a decline thus far in February. For 10Y yield, it suggested a decline to +/- 4.30%.
An economic look at the week ahead and ‘round the globe from across the pond …
Last-minute negotiations averted tariffs on Mexico and Canada for now, showing a still-transactional Trump. But the trade war with China has begun and Trump's attention is expanding to the EU and geopolitical deals. Meanwhile, payrolls indicate a robust US labour market ahead of next week's CPI…
…US Outlook Appetite for disruption: First tariff blow Disruptions from a trade war with Canada and Mexico were averted, but a 10% tariff was delivered on China. This week's payroll report hints at a firming labor market, with a further decline in the unemployment rate. Next week, we expect to core CPI inflation to firm to 0.3% m/m (3.1% y/y).
…Fork-in-the-road buyouts not a major factor, for now We do not expect the efforts by DOGE to reduce the size of the federal government to have a large negative effect on government employment in the near term. About 50k federal employees have announced taking the "fork in the road" option (Musk buyout offer), prior to a judge pausing that. If the government can proceed with this offer, workers who leave the federal government would show up on government payrolls, and the monthly payroll estimates, through September…
…We retain our call that the FOMC will deliver only one cut to the funds rate this year, in June, with activity data nearly ruling out a March cut. We still think the FOMC will then remain on the sidelines until June 2026 as it sorts through a perplexing mix of indicators, including tariff-related inflation, a tightening labor market, and policy-related uncertainty. With the labor market tightening, and preliminary indicators of inflation expectations from the University of Michigan increasing again in February, risks are skewing toward the Fed's delivering no cuts this year. The sharp increase in the 1y UMich inflation expectations to 4.3% from 3.3% in January likely reflects concerns about tariffs and appears to be reflecting concerns by Democratic-leaning responders. Meanwhile, the 5-10y ahead measure of inflation expectations rose again, to 3.3%, raising concerns that inflation expectations are no longer as well anchored as policymakers often say, even though this preliminary release has a history of being revised down in the final print (Figure 4). In any case, with inflation expectations coming in elevated amid a tighter labor market, we are putting somewhat more weight on off-baseline scenarios where rate hikes enter the conversation.
Best in show ‘added a core STEEPENER position in 2s10s’ Wed (at 50dMA 23.3bps) and looking to dip-OR-tunity on front end (buy 2s above 4.30%)
In the week ahead, the ongoing headline risk from the White House related to Trump’s trade war will persist. The lack of a schedule for any new information on tariffs has left the Treasury market in a state of readiness (or heightened anxiety) to respond to the nuances of the President’s agenda. We'd like to assume that the one-month delay for levies on Canada and Mexico will provide a lull in tariff threats, however, the US has a lot of trade partners and the messaging from the White House is that this process is only beginning. With this backdrop, there was a net bond bearish interpretation of the January employment report. The headline payrolls figures disappointed, but the drop in the UNR and increase in participation combined with the reacceleration of nominal wage growth pushed Treasury yields higher – although not dramatically so. In fact, the response to the employment figures can be best characterized as an in-range affair. We’ll argue that this speaks to the one-way relevance of the labor landscape at the moment.
Said differently, as long as we don’t see a decided downshift in the pace of hiring, the Fed’s primary concern remains the trajectory of inflation. To this end, the reacceleration in nominal wages (AHE at +0.5% MoM – highest in a year) has rekindled concerns that underlying inflation expectations could quickly follow suit. The jump in 1-year inflation expectations seen in the University of Michigan series brought the gauge to 4.3% – an impressive move from the prior read of 3.3%. Investors are once again on edge regarding the incoming realized inflation series – putting the emphasis on January’s CPI, PPI, and Import Prices – all of which are contained in the week ahead. The consensus for core-CPI and core-PPI is a monthly gain of +0.3%. That being said, as was the case in December, a +0.3% move in core-CPI can easily translate into a +0.1% core-PCE move – a pace that is very consistent with the Fed’s inflation objective. We’re cognizant of the increasing chorus of calls for no Fed cuts in 2025, even if our read is that the Committee has a high degree of conviction to the normalization process.
We’re onboard with the notion that the Fed has plenty of flexibility to delay cuts and January's employment report only added to this case. The BLS release bought the Committee some more time to evaluate and incorporate the trade war into its outlook, and we maintain that the first truly ‘live’ meeting during the first half of this year is June – and that is by no means a done deal. This isn’t to suggest that the probability of cuts won’t remain volatile; in fact, that is precisely what we’re expecting as the incoming data and Trump’s policy influence the market's economic and monetary policy expectations.
The inability of the Treasury market to selloff beyond the modest, post-payrolls move is certainly encouraging for our longer-term constructive outlook on the market. However, the need for a more significant auction concession to underwrite the refunding auctions certainly resonates. Whether this comes in the form of a steeper curve or an outright backup in yields that pushes 10-year rates back toward 4.60% remains to be seen. Regardless of the character of the concession, we ultimately expect that the duration will be well-received, and yields will begin to settle lower once again. An upside surprise on core inflation is the wildcard to our range-trading thesis, although we expect that the market has reached the stage at which reflationary angst (or its opposite) will be a Fed/front-end story versus duration…
IF you wish to LISTEN to the weekly instead (which I do when out walkin’ the dog …)
Sunday is arguably 2025's biggest day for broadcast television and we're hoping for a Hall of Fame performance. Recall the all-time greats? In 2000 there was Budweiser's "WHASSUP!", in 1984 there was Apple's "1984", 1995 saw "Bud" "Weis" "Er", 2008 brought the E-Trade "Talking Babies", and who can ever forget "Where's the Beef" in 1984. One thing is certain, Super Bowl LIX won't see the debut of the first ever Macro Horizons 30-second television commercial. We all know the ($)8 million reasons why. To say nothing of a lack of wit and faces made for podcasts.
Episode 310: "Super Bowl or Super Core?" is now available. This week, the team ponders the bearish interpretation of the employment data as well as the Refunding announcement. We also discuss Bessent's first appearance as Treasury Secretary and consider the deluge of DOGE headlines.
A look at CPI in the week ahead, this time from France …
We see several sources of volatility potentially impacting the January CPI report, including residual seasonality, avian flu-related food shortages and tariff-linked uncertainty.
This combination of factors will likely push both headline and core CPI to rounded 0.3% m/m prints.
While risks to our baseline look balanced, the market may react asymmetrically to a downside surprise, with a risk of lower yields.
AND same shop with an inter-related note which one and all might ought to pause and read … Think FLATTENER
Treasuries/TIPS: With stagflation risks rising amid tariff discussions, we like adding 2s10s curve flatteners. Even if stagflation risks recede, we think the curve could bull flatten as markets reverse the Fed’s hawkishness. Flatteners have an asymmetry, similar to our long 10y TIPS suggestion
Core CPI has surprised to the upside in January in 13 of the last 14 years, with yields rising in 6 out of last 7 Februarys. However, this year we could see an asymmetry towards lower yields – an upside print might be seen as a ‘usual’ January distortion, but a downside print is seen as good news.
Last week’s refunding announcement surprise bolsters our view of a risk to “regular and predictable” issuance. We now expect coupon increases in February 2026.
Money markets: We think SOFR/FF spread could signal ample reserves by July – sooner than markets expect - supported by rising peak daylight overdrafts, Senior Financial Officer Survey, and our TGA view. We add short July 1m SOFR/FF contracts.
…Why flattening could continue: If tariffs continue to be the main topic of conversation (our base case), and stagflation risks continue to be priced in, we expect curve-flattening and a fall in real yields (see ‘Tis the time for TIPS, dated 27 January) to continue. Notably, real yields and the curve shape have been moving in the same direction in recent weeks – see Figure 2.
KEY MESSAGES In this piece we outline our framework for identifying which countries are next in line for targeted tariffs from President Trump.
We think Trump cares about three criteria in particular: the outright size of the US trade deficit, US trade in “strategic” goods, and reciprocity of tariff rates. On that basis, we think Thailand, South Korea, and Japan stand out as countries that are the most vulnerable going forward.
From German shop on stocks, from a flows and POSITIONING point of view (with a visual that caught MY eyes) and a note (visual) on EARNINGS…nothing I’ve seen here suggests imminent need for more rate CUTS …
DB: Investor Positioning and Flows - Navigating Cross Currents
The S&P 500 has been going sideways in a tight +/- 2% range for the last three months since the initial post-election pop. While trade policy developments have garnered the most attention, there have been several other cross currents buffeting equities, such as renewed rates volatility on overheating and inflation concerns, green shoots emerging in manufacturing, and solid earnings growth bumping into elevated positioning this season, especially in mega-cap growth and Tech….
…Charts of the week
DB: Asset Allocation - Q4 2024 Global Earnings: Growth Moves Up Into Double Digits
In our takes on the US earnings season last week, we noted earnings growth for the S&P 500 tracking the strongest in 3 years and excluding Energy notably higher. (Q4 2024 Earnings Takes: Growth Edges Up To A Three-Year High, Jan 31 2025). Now, well into the earnings season globally, with nearly three quarters of companies having reported in the US and Japan, half in Europe and a quarter in EM, we present our key takes below..
…Global earnings growth moves up into double digits. Global earnings growth, which was in the mid-single digits in the first three quarters of 2024, spiked to 12.4% yoy in Q4 2024, the highest since mid-2022. The Energy sector was a drag across regions as in recent quarters, excluding which growth is on track to be a much stronger 16.8%. Growth was positive for the Tech, Consumer Discretionary and Materials sectors in all four regions. Across regions:
US earnings growth edges up to a 3-year high. S&P 500 earnings growth is on track to be 13.0% yoy in Q4, its strongest in 3 years. Excluding Energy, growth is tracking 16.3%, the highest since the GFC outside the 2018 corporate tax cuts and the post-pandemic boom.
Growth continues to be lackluster in Europe. Earnings in Europe declined (-2.7% yoy), marking the sixth quarter of decline in the past seven. However, earnings growth in recent quarters has run well above that implied by weak macro growth. The level of Stoxx 600 earnings continued the broad declining trend of 2 years, primarily reflecting the fall in oil prices. Excluding Energy, the level of earnings has been in a narrow range for over 3 years and the weakness in Q4 puts them on track to be at the bottom of the range.
Very strong growth in Japan and EM. Earnings growth in Japan is on track to be over 24%, much higher than that implied by macro growth, as it benefits from base effects and one-off items. Growth in EM is tracking a solid 16%, its highest since mid-2022…
An update from one shop who likes 5s and another, same shop, with update of global MACRO variety …
MS: Stay Long, Buy More on Dips | US Rates Strategy
A clear indication that Treasury plans on keeping coupon bond supply stable this year should alleviate a major concern for prospective buyers. We think foreign demand should remain robust at currently attractive yield levels, despite trade confrontation. Stay long duration at the 5y maturity point.
Key takeaways
Investor conviction in our call for no increases in coupon Treasury supply this year rose after the Treasury quarterly refunding announcement.
Without supply concerns weighing on investor minds, we think concern should concentrate on US trade policy and its potential impact on foreign demand.
We think increasing concern about foreign demand for the past few years ignores data that show foreign demand improved as yields rose from all-time lows.
The US Treasury index offers a currency-unhedged yield pickup vs. the global government bond aggregate in the 80th percentile since 2001.
With the January employment rate falling, investors will want to see a below-consensus core CPI on Wednesday to chase yields lower.
… If foreign demand relies on private investors and yield levels attract private investment, then how might private investors view the opportunity in US Treasuries?
Exhibit 11 and Exhibit 12 show that, on a currency-unhedged basis, US Treasuries offer a very attractive yield pick up against other global government bonds.
The currency-unhedged yield advantage of the US Treasury index – around 1.25% vs. the global government bond index – sits at the 80th percentile.
The ~1.25% may not seem like a large yield advantage. However, consider that the US aggregate index – that includes investment grade (IG) corporate bonds and agency mortgage-backed securities (MBS) – only enjoys a 0.43% yield advantage over the US Treasury index (see Exhibit 13 and Exhibit 14 ).
The yield advantage of US Treasuries and lower-than-expected supply should keep foreign demand both robust and immune to the politics of trade conflicts.
Mixed bag in NFP data; USTs cheapen as Fed easing expectations are priced out; reports of potential reciprocal tariffs; strong Canada employment; RBI cuts rates, but retains neutral stance; ECB staff sees neutral rate between 1.75 -2.25%; DXY at 108.10 (+0.4%); US 10y at 4.495% (+6.1bp).
A miss in US Headline Nonfarm Payrolls, rising just 143k (C: 175k), is offset by an unexpected fall in the Unemployment Rate, a sizable beat in Average Hourly Earnings, and smaller-than-expected downward annual benchmark revisions.
USTs cheapen in response to the strong elements of the NFP release and expectations for slower Fed easing with the December OIS meeting repricing 9bp higher; the sell-off accelerates after a surge in University of Michigan 1y Inflation Expectations to 4.3% (P: 3.3%)…
AND from our neighbors to the North — perhaps these notes will be tarrif’ed? — a few words on inflation …
RBC: Forward Guidance: U.S. January inflation to show limited easing in price pressures
…We expect some signs of gradual easing in core price growth in January, but with the total consumer price index growth holding at 2.9% year-over-year, and the risk of a round of tariff hikes on imports from China threatening to stall further progress later this year.
We expect core prices edged up by 0.2% for a second straight month, excluding volatile food and energy components. Growth in home rent prices has continued to slow as expected from an earlier slowdown in market rent costs filtering gradually through to lease renewals. Growth in core goods prices slowed in December after a larger rise in November. By our count, the breadth of inflationary pressures narrowed in December, and we will watch our diffusion measure closely for further signs of broader easing in price pressures.
We don’t expect that progress on inflation will be enough to prompt additional interest rate cuts from the Fed this year…
Feelin’ confident?
WELLS FARGO: Spooked by Tariffs, Consumer Sentiment Wilts as Inflation Fears Mount
Summary Sentiment fell to a seven-month low as all five index components fell in February, particularly in buying conditions for durables. Year-ahead inflation expectations shot up by a full percentage point to 4.3%, only the fifth time in 14 years inflation expectations have risen so much in just one month.
… Moving along TO a few other curated links from the intertubes which maybe useful …
What exactly were you expecting to wake up and see in the inbox from Torsten Slok of Apollo …
Corporate capex spending plans are moving higher after the election, see chart below. This points to upside risks to growth and hiring.
Our chart book with high frequency indicators for the US economy is available here.
Source: Business Roundtable, NFIB, Federal Reserve Bank of Philadelphia, Dallas, New York, Kansas and Richmond; Apollo Chief Economist
Source: Redbook, Haver Analytics, Apollo Chief Economist
… gotta say I’m not only NOT surprised but, well, am not surprised …
AND written / sent just before the data …
BLOOMBERG: A Yield Bounce On Positive Jobs Data Might Not Last Long
Authored by Simon White, Bloomberg macro strategist,
Expectations are for solid US employment numbers later today, which aligns with the underlying trend based on leading indicators. Long positioning in Treasuries could see yields bouncing higher if the data notably beats expectations, but concern about global trade and tariffs is ultimately likely to mean a bid for bonds will soon return.
There’s always unease when everyone seems to agree, but general expectations are for firm jobs numbers today, with payrolls expected at 175k and the unemployment rate to hold steady at 4.1%. Most other indicators of the health of the labor market over the last month have been positive, also pointing to a decent payrolls number.
Agreeing with that are leading indicators. Temporary help tends to fall ahead of downturns as employers typically get rid of non-permanent staff first. It had been giving recessionary signs, but its growth is now clearly rising again. That points to the annual trend in payrolls soon picking up.
We will also get the unemployment rate for January today.
Keeping it supported more than most had anticipated is the influx of immigrants. That initially caused the employment rate to fall and thus the unemployment rate to rise. But as immigrants start to find work, the opposite has been happening, keeping a lid on the rate.
Given that positioning in Treasuries is now quite long on the back of worries about a trade war, a noteworthy positive surprise in today’s data could see yields flick higher after yesterday’s bond rally.
But a strong print is unlikely to single-handedly alter the macro backdrop (a very weak print might, but we would need to see confirmation from other data points), and any Treasury selloff will not last too long before trade worries resurface.
Moving away from NFP before / after and on to data at days end …
BLOOMBERG: US Consumer Borrowing Surges by $40.8 Billion, Most on Record
…With some additional ‘color’ from the intertubes …
Consumer credit change (I). Total consumer credit jumped by a record $40.8bn in December, driven by a $22.9bn surge in revolving credit (also a record) and a $18bn increase in non-revolving credit (the most since October 2022).
Finally as day came to an end with stocks gettin’ hit …
BLOOMBERG: Trump Says He Plans Reciprocal Tariffs, Will Affect ‘Everyone’
US president also indicates he could tax foreign automobiles
Threat is latest in series of trade warnings from White House
More on POSITIONS here but from a FI point of view where SHORTS ARE BUILDING …
HEDGOPIA CoT: Peek Into Future Through Futures, How Hedge Funds Are Positioned
Here’s one running counter TO BMOs core STEEPENER added / noted above …
INFORMA: Things That Stick Out: Friday Morning Edition
Bond yields are unsurprisingly higher here after a good jobs report and a surge in year-ahead inflation expectations from the UMich survey. Wages topped forecasts, and the downward 818k annual revision to payrolls published last August (for the period April 2023 to April 2024) was again revised to just -589k.
The futures market immediately backed off expectations for rate cuts this year to around 37 basis points from 47 bps on Wednesday.
But as we say in the business, what’s the next trade?
For one, there’s a lot of bond supply next week, $125 billion in Treasury coupons plus an estimated $40 billion in corporates. That alone should keep pressure on the fixed-income sector.
However, on the other side is DOGE.
Events in Washington are moving at such a frenzied pace that markets are struggling to handicap outcomes. And because it is unprecedented, like COVID, it’s initially hard to grasp the scale of possibilities.
After living for nearly a decade ‘inside the beltway,’ I can say with certainty that the whole town is in shock, even panic. Not just over the prospect of losing jobs, but other sources of money that extend outward from myriad agencies.
As we wrote yesterday, it appears Trump and Treasury Secretary Bessent are going for a reset of the economy, breaking the cycle where the Fed perpetuates bad incentives through reflexively easy monetary policy anytime something goes wrong. See: Things That Stick Out: Thursday Morning Edition
Along with increased energy production, Trump sees reductions in government spending and income from trade tariffs as keys to easing fiscal pressure and delivering low- or non-inflationary growth.
Like with any addict though, withdrawal from a habit of profligate spending will be painful. Trump admits it freely.
So in our minds, that’s the next trade. Lower yields and a flatter curve.
… AND for any / all (still)interested in trying to plan your trades and trade your plans in / around FUNduhMENTALs, here are a couple economic calendars and LINKS I used when I was closer to and IN ‘the game’.
