weekly observations (03.31.25): March Sadness, traded out bulls, buyers of 7s (adding to longs); 'discretionary' positions NEUTRAL and some more NFP precaps ...
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’ve got to say I’ve really not much to add here and now to the discourse out there on Global Wall at the moment. I’ll be brief and hand it over to the pros in a sec…
… nutthin’ little bit risk OFF igniting bond jockey animal spirits and again, who’d a thunk it?
March Sadness, indeed … A quick look at the 10yr yield for some context …
Momentum on a WEEKLY basis looking stretched as it did as 2024 came to an end as rates were about to move markedly HIGHER … Lets wait and watch … Monthly charts to follow but first, there was … um … the data Friday …
ZH: Fed's Favorite Inflation Indicator Re-Accelerates In February As Savings Rate Soars
CalculatedRISK: Personal Income increased 0.8% in February; Spending increased 0.4%
CalculatedRISK: PCE Measure of Shelter Decreases to 4.3% YoY in February
ZH: UMich Inflation Expectations Surge Even Higher As Democrats Freak Out
… and by days / weeks end, sum total of the ‘panic in the bond disco’ …
ZH: Gold Surges To BestStart To A Year Since 1986 As StagflationScare Slams Stocks In Q1
Q1 saw a big Global Asset ‘Regional Rebalancing', with money into “Fiscal Expansionists” and stimulators / easers i.e. Europe & China, and money out of “Fiscal Contractionists” i.e. United States as “source of funds”...
…...and if there's one chart to sum up Q1, it is this one - Goldman's Long/Short Stagflation basket has exploded higher...
… Rate cut expectations are significantly higher from the start of Q1... which could well be overly dovish given the stagflationary signals...
However, Treasury yields tumbled today - growth concerns trumping inflation fears - having dropped significantly in Q1, with the belly outperforming...
… all this served to REALLY magnify how much it stunk to be ‘traded out bull’ … It happens and living to fight another day far more important than any daily battle …
… Alrighty, then.
As I said, I really don’t have much to add here / now and so…
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
A few updated thoughts/visuals from THE bank of the land …
28 March 2025 BAML: Global Rates Weekly Fool me once, fool me twice
The View: Big Wednesday A big week ahead, with what would normally be headlining acts – US payrolls and Eurozone Flash CPI – likely to concede top billing to tariffs on Wednesday. The downside risks to growth that tariffs present support our constructive rates view, while our economists’ call for a sub-2% Euro CPI print reinforce the bullish message there.
Rates: Rates super-fly US: Stay constructive belly duration but pay June ’25 FOMC OIS on solid data
…Bottom line: hold soft long duration bias in belly & in 5s30s steepeners. Be paid June FOMC OIS given sticky inflation & recent solid hard data. Rate forecasts shift lower near term but remain stable over medium term.
…Technicals: Liberating levels for US 10Y and US 5s30s We recap the daily charts and key levels for US10Y yield, US5s30s, euro, SPX & Copper. US 10y yield resistance +/- 4.45%. US 5s30s reached our year ahead target.
… US 10Y Yield: Possible top if below 4.45-4.50% Our view was to fade the YTD decline in the 4.20s and look for a bounce back in March. This has occurred. Yield is approaching technical resistance at about 4.45%. While below, a head and shoulders top may form. But if it breaks higher above the declining trend line and 50d SMA, upside risks develop. The left shoulder high at 4.50% is the last textbook level that could be considered for a top formation or 4.10-4.50% range. Above 4.45- 4.50% and risk tilts to higher yields into May such as 4.66%, 4.80% and maybe 5.00%.
In the week ahead, the market will face the combination of Trump’s tariff announcements and the typical array of employment proxies in the run-up to Friday’s BLS report. Investors will also continue to digest the information already in hand regarding the significant levies on the global auto industry as well as the ramifications for realized US inflation. Chair Powell maintains that the tariff-linked increase in inflation will be one-off price adjustments and, therefore, temporary. This doesn’t mean that inflation won’t be higher, rather the implication is that the FOMC is unlikely to base monetary policy on the near-term inflation trend – at least not beyond delaying the resumption of normalization. The Fed has maintained that it is too soon to fully incorporate the ramifications from the trade war into the Fed’s decision-making and while to some extent that might still be the case, the March SEP showed notably higher core-PCE and lower growth expectations for 2025.
Trump’s Liberation Day announcements will provide more clarity and as such, presumably allow investors (and the Fed) to more fully incorporate the fallout from the trade war. Using the SEP as a guide, higher tariffs will translate into an upward bias for inflation but a downward one for real growth. February’s real spending figures disappointed and were accompanied by downward revisions to January’s pace of consumption. Q1 real GDP was already under pressure from the drag of net exports and lackluster spending. Adding on a fresh round of tariffs will only serve to increase the uncertainty of the growth outlook; a dynamic that has typically been associated with demand for duration. Friday’s price action has reinforced this feedback loop, and we’ll quickly add that quarter-end duration buying is also a consideration as March comes to an end.
Our concerns on the growth front have been extended by the softer realized spending patterns – a trend that was in place before Trump reentered the White House and resumed his trade agenda in earnest. Trade war headlines and the impact on risk assets have already undermined consumer confidence. This is a troubling trend when considering the willingness of households to move forward with large purchases, such as autos and homes. The stickiness of mortgage rates and consumer loans have further contributed to the mounting headwinds. The key redeeming attribute of the current state of the US economy remains the resilient labor market conditions. Despite flagging sentiment, consumers are likely to remain confident with current spending trends unless and until there is a material downshift in the jobs market.
It's this reality that makes the release of Friday’s BLS data all the more potentially market-moving. It’s certainly not wasted on us that the consensus for headline payrolls is an uninspired +135k jobs. Still in positive territory, but slowing to the pace of simply keeping up with population growth. While the market is anticipating an unchanged UNR, we struggle to envision such below-trend NFP prints not eventually translating into a higher Unemployment Rate. Recall that in February, the Underemployment Rate spiked by 0.5 ppt to reach 8.0% – the highest level since October 2021. We’re cognizant that the prevailing ‘solid’ labor market narrative remains in place and has been reinforced by official Fed commentary – even if ‘balance’ has returned. Nonetheless, there are pockets and anecdotes which imply the downside risks have increased. As the global growth outlook continues to dim, we’re wary of a pullback in hiring taking on a downward momentum all on its own…
… Trading View As a brief update on our trading book: 1) We were stopped out for a loss on our long position in 30-year bonds (entered March 6th at 4.60%) on Thursday at 4.72%. We remain constructive on duration in the medium-term, even as it’s not difficult to imagine a backup in 30-year rates as the trade war intensifies – with all that implies about the forward path of inflation. 2) While our position remains in the money, the unrealized gains on our short position in July 2025 Federal Funds Futures FFN5 (entered Friday, March 14th at 95.925) have declined since the FOMC. 3) We're actively looking to fade a rally in January 2026 Federal Funds Futures (FFF6) if the market prices in 80+ bp of rate cuts on weakness in the economic data. 4) Our core-steepener position in 2s/10s (entered February 5th at 23.3 bp) has been closing in on our initial target of 38.0 bp. If reached, we'll book profits on part of our position before targeting a retest of the early-January peak of 42.9 bp…
…With breaks currently at 237 bp, we see scope for upside as ‘Liberation Day’ quickly approaches, and we'll look to fade a bounce in breakevens at the upper bound of the Fibonacci 'Golden Zone' (area between 50% and 61.8%) at 240 bp…
A French shop with an(other) NFP precap …
28 Mar 2025 BNP: US March jobs preview: Balancing act
KEY MESSAGES
We expect the March jobs report to show a slight softening in payroll employment growth, but to conform broadly with the Fed’s view that the labor market is solid.
We look for a gain of 145k in nonfarm payrolls, a 15k drop in federal government jobs, and a steady jobless rate at 4.1%.
Though anxiety about the jobs market has risen, we think even a soft report may not immediately shift the Fed’s attention to rate cuts.
Positions matter. Even when we’re talkin’ ‘bout stock jockeys / investors …
28 March 2025 DB: Investor Positioning and Flows - Discretionary Investors Holding At Neutral
Overall equity positioning crept higher for a second week, but remains modestly underweight (z score -0.23, 31st percentile). While systematic strategies are underweight (z score -0.44, 25th percentile), discretionary investor positioning edged up again and is slightly above neutral (z score 0.09, 48th percentile). Vol priced for the anticipated tariff announcements on April 2 is still quite modest and the market is as, if not more, focused on the payrolls data to follow two days after. What to make of neutral positioning in the face of event risks? …
Same German outfit on lags (Short/variable) impact of trade policy uncertainty …
28 March 2025 DB: The short and variable lags of trade policy uncertainty
In a recent note we replicated and extended Fed staff work from the first trade war to quantify the potential effects of trade policy uncertainty on economic activity (see “Analysis of the paralysis from trade policy uncertainty”). One conclusion from that work was that the spike in trade policy uncertainty to date could have a significant and sustained impact on economic activity. However, the peak impact on the level of real GDP was after about 18 months.
This finding seemed at odds with our intuition – as well as evidence in the soft data – that the impact of trade policy uncertainty was likely to be front-loaded. In this note we translate our previous findings into quarterly growth effects. We find that, indeed, most of the drag on activity comes in the first three quarters, with the peak impact on quarterly GDP centered around Q3 2025.
As with our prior work, we caution against being too precise with these estimates. The results have wide error bands and depend on the measure of trade policy uncertainty. Nonetheless, the analysis suggests the lags from trade policy uncertainty to growth could be short.
… AND from a shop that has had and maintains a long duration bias … now buyin’ 7s …
March 28, 2025 MS: Weaker Growth + Fed On Hold = Buy US Treasuries Outright | US Rates Strategy
The pre-April 2 information set should encourage investors to sacrifice some carry for more risk-off hedging exposure. We suggest increasing exposure to lower rates by adding an outright long in 7-year US Treasuries (or TY futures) while maintaining exposure to the 5-year point on the 2s5s30s fly.
Key takeaways
The waiting game for April 2 reciprocal tariffs came to an end after the unveiling of wide-ranging auto tariffs and disappointing US consumption data.
Investors expect "lenient" reciprocal tariffs and/or tariffs that don't last long. Any added uncertainty after April 2 could weaken conviction in those beliefs.
We recently suggested prioritizing carry when positioning for lower yields, but we think investors should raise the priority of risk-off hedge performance.
We suggest investors add more outright duration to portfolios by buying the 7y US Treasury note or the TY futures contract outright. Stay long 5s on 2s5s30s.
Watch forward guidance coming on April 2 – and a possible US Senate vote on a budget resolution, as well as March nonfarm payrolls.
…Given the increasing number of "low probability, high impact" event risks building on the calendar, we feel more comfortable advising investors to pay less attention to carry considerations – while not dismissing them entirely – by adding trades with better expected performance in a continued risk-off environment.
In that regard, we suggest buying Treasuries near the peak carry and roll point on the yield curve that also improve risk-off hedging properties: the 7y maturity point, or the TY futures contract (see Exhibit 1 ). Indeed, the 7y point today carries and rolls better than the last time tariffs and the Fed sent equities lower: 2019 (see Exhibit 2 ). The key risk to the duration trades involve less concern about tariffs after April 2 and progress toward expansionary fiscal policy…
…Trade idea: Enter long 7y US Treasury note at 4.11% with a target of 3.50% and a stop of 4.30% and enter long TYM5 at 111-06 with a target of 115-20 and a stop of 110-00…
A(nother) weekly with a NFP precap as well as an interesting curve / idea update …
March 28, 2025 NatWEST: US Weekly Economic and Strategy Brief
Highlight of the week: Given the enormous amount of uncertainty around the economic outlook, the upcoming labor market data will be in the spotlight. Afterall, consumers helped keep the post-COVID expansion alive and well in recent years, and if the economy is to stay out of recession over the course of the next year or so, consumers will need to hang in (with a job) for a while longer. While job cuts due to DOGE are difficult to quantify, we do expect to see cuts showing up in coming months. We look for overall payroll growth to have moderated to 70,000 in March from 151,000 in February, with private payrolls moderating to 80,000 from 140,000 in February. We also look for the unemployment rate to have increased 0.1 pt to 4.2%. Auto sales should give us an important early look at consumer spending in March, while the ISM gauges could show heightened concerns given the escalation of trade wars and tariffs...
…US Rates The devil and the deep blue sea The Fed is stuck between the devil of inflation, and the deep blue sea of weaker growth. We expect the Fed will ultimately choose to confront the former. Trade policy is a headwind to growth, but activity was healthy, if showing some early late-cycle signs, before the public vetting of future tariff policy began.
We are skeptical that the economy will slow enough relative to trend in the near term to bring inflation back to target. Gradual compression of margins will take its toll, but we think the likelihood of recession in the next year remains low.
Historically commentators have noted that economic cycles rarely die a natural death, but we suspect the Fed’s least bad alternative will be to remain on hold while growth slows cyclically, tightening counter-cyclically but passively. We see the probability that the Fed will have to tighten further as low but underweighted in the current market pricing paradigm.
Our strongest view remains for curve flattening, which we see as a consequence of gradually slowing growth accompanied by sticky and above-trend inflation.
I often wonder about this next question, myself … am glad to see an answer …
March 28, 2025 Wells Fargo: What if the Cavalry Stays Home? Consumer Not Saving Q1 Growth
Summary With one month left in Q1, there is still room for hope, but so far, consumers are not coming to rescue economic growth as they have so many times in recent years. Despite weaker-than-expected spending, core PCE inflation is on the rise again.
… Moving along TO a few other curated links from the intertubes, which I HOPE you’ll find useful …
Ahead of Friday’s data …
Sat, March 29, 2025 at 4:00 PM EDT Bloomberg: US Employers Tap Brakes as Tariff Policy Dims Outlook
(Bloomberg) -- US employers probably tempered their hiring in March, just as consumers grow increasingly cautious and the economic outlook dims on concerns about the fallout from higher tariffs…
This is getting lots of air-time … read the devils in the details OR just the click-bait, up to you …
March 29, 2025, 6:59 PM EDT NBC: Trump says he ‘couldn’t care less’ if foreign automakers raise prices due to tariffs In an interview with NBC News, President Donald Trump also said he wouldn’t fire anyone involved in the Signal group chat.
… somewhat MOAR on ill-timed rate cuts …
Mar 28, 2025 WolfST: Inflation Galore Now: Fed Started Rate Cuts at the Low Point 6 Months Ago, just as Inflation Began to Resurge
Core PCE price index jumps MoM by most in 13 months on Non-Housing Services. Recreational Services blow out. Durable Goods continue 6-month trip out of deflation.
… 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’.
First, this from the best in the strategy biz is a LINKthru TO this calendar,
