weekly observations (04/15/24): global wall's calls TRUMPED by the news, "Iran seizes cargo ship in Strait of Hormuz after threats to close waterway"

Good morning / afternoon / evening - please choose whichever one which best describes when ever it may be that YOU are stumbling across this weekends note…

Awaiting latest from Dr. Lacy Hunt / HIMCO and so what follows is time / space filler — sorry — not sorry — for that.

First UP, given the turn of events and evolving geopolitical macro backdrop developing in the Middle East …

Reuters: Iran seizes cargo ship in Strait of Hormuz after threats to close waterway

… I’d not be shocked to see more of whatever it was which happened Friday ….

ZH: Gold & The Dollar Surged This Week, Stocks & Crypto Purged As Reflation & WW3-Risk Wreck Rate-Cut Hopes …

… That was how the week ended but wait, since then, there’s more …

ZH: Middle East Crisis: Container Ship Hijacked Near Strait Of Hormuz Amid Soaring Iran Tensions

… Here’s visual from Bloomberg.com and you KNOW it must be serious if prez up off the beach and coming back TO DC …

… AND whatever you do, do NOT head TO CNBC for something more markets friendly …

only market open is BITC and I’m not going to even try to go there. Have yerself at #FinTwit or whatever you will for that …

I’ll stick to my wheelhouse and begin with a couple weekly visuals of yields I’m going to be watching / leaning on in days / weeks just ahead …

2yy: remain in uptrend but stopped short of psychologically important 5% and once again toying with 4.75% — geopolitical monkey biz could very well push rates back down (so, then, would Fed need to CUT rates? askin’ for a friend…)

10yy: remain in uptrend BUT … momentum — oversold — suggests we might be at an <interim?> inflection point and so, revisiting the bottom of the uptrend channel?

Next, lets deal with a couple / few things items from yesterday before trading truly got underway …

ZH: JPMorgan Slides After Dimon Warns On Net Interest Income, Outlook Disappoints

ZH: UMich Inflation Expectations Jump Higher At Start Of April, Sentiment Sinks But Democrats Happy

… Ok I’ll move on AND right TO the reason many / most are here … some UPDATED WEEKLY NARRATIVES … some of THE VIEWS you might be able to use and these are in addition TO (updated calls) offered earlier in the week post CPI … and with same confidence they were originally crafted and re-crafted, where Global Wall simply relies on old adage, when facts change, they change, etc … THIS WEEKEND, a couple / few things which stood out to ME this …

BAML rates weekly, “Cut mulligan”

… Data has supported our patience on duration stance; longs at current levels are looking more attractive from risk/ reward perspective. We revise higher 2y & 5y targets on back of Fed cuts pushed out but hold 10y & 30y forecasts. 

BARCAP Global Rates Weekly, “Stuck”

…We have been recommending shorting 10y US Treasuries (entry: 4.08%, current 4.56%) over the past month or so, and we maintain that view …

BMO weekly, “Focused on Fedspeak” (enter 5s30s steepener IF …)

SocGEN FI Weekly, “Fork in the road” (think Yogi — get to the fork in the road, take it)\

… How high can yields go? 
The 2yT yield close to 5% reflects a scenario of little to no cuts for this year and perhaps one cut a quarter for next year, with the terminal fed funds rate around 4.50% and a long-run fed funds rate around 4%. This is at odds with the median dots in the summary of economic projections (SEP), which shows fed funds at 3.1% by end-2026 and at 2.6% over the longer run (Graph 10). In effect, the market is currently pricing in a benign rate cut path, akin to what we saw in the 1990s. In our year-ahead outlook (see here), we highlighted this scenario as an underpriced risk.

So unless the Fed does not cut rates over the next year (or longer) or pivots to rate hikes, we do not see much room for the 2yT yield to continue to rise from here. The longer the Fed stays on hold, the greater the impact on growth and inflation. In our view, this would in turn cap the rise in long-end yields. With the Fed biased to ease, the bar remains high for the 10yT yield to rise to 4.75% or 5% in a scenario where inflation is sticky but does not meaningfully accelerate from here. Hence, we believe yields on Treasuries are attractive on an outright basis, although the cost of carrying long positions remains prohibitively high.

➔ Leg in belly longs in UST 2s5s10s fly

… AND more. MUCH, much more…

… Moving along and away FROM highly sought after and often paywalled and Global Wall Street narratives TO a few other things widely available and maybe as useful from the WWW

AllStarCharts: Dow hits New 52-week Lows Priced in Real Money

Bloomberg (via ZH): The Secular Trend In Treasuries Is Breaking Down

… Not only have prices been breaking down, so has the growth rate. The annual change in USTs is mean reverting, but as the chart below shows that mean has clearly been falling. That leaves Treasuries more likely to rebound less than before, and thus start to sell off earlier.

The current rebound off the very oversold conditions in late 2022 already looks to have faded.

We are now back in a selling-off phase as the growth rate oscillates around a lower mean (as low as 0%, from over 5% before).

That makes owning Treasuries a grim prospect, exacerbated by the still-low chance of a near-term recession in the US, and resurgent inflation.

Hedgopia: CoT: Peek Into Future Through Futures, How Hedge Funds Are Positioned

at MikeZaccardi (4:09 PM · Apr 12, 2024 … bank earnings … not a great start)

$JPM worst day in 46 months... good first day of earnings season....

FRED: How the Big Mac Index Relates to Overall Consumer Inflation

Big Mac inflation appears to track CPI inflation, but its path can diverge from overall U.S. inflation because of price deviations relative to other items in the consumer basket.

The Big Mac index was created by The Economist magazine as an informal way of measuring the purchasing power parity between different countries and currencies. The idea is that in every country, the Big Mac sold at McDonald’s is the same. The price of the Big Mac should reflect the local price of ingredients, wages and other expenses like advertising. Therefore, even though the Big Mac sandwich is the same in every country, its price differs.

Many people use the Big Mac index to roughly gauge the relative strength of foreign exchange rates. But does this price index also reflect a country’s inflationary pressures? In this blog post, we compare U.S. data from the Big Mac index to the U.S. consumer price index (CPI) for all items, which is the headline price index number that gets reported in the media.

… 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 LINK thru TO this calendar,

Wells FARGOs version, if you prefer …

… and lets NOT forget EconOday links (among the best available and most useful IMO), GLOBALLY HERE and as far as US domestically (only) HERE …

… AND a couple pictures as this comes to a close. First a graph for the equity bears thinkin …

… finally, NOT to get all political here but this one seems to have something for everyone (ok, maybe not everyone and so, to those who’ve been offended … sorry NOT sorry and please direct all communications TO https://grrrgraphics.com/ :)

… seriously, though, inflation is bad we can all agree and way to FIGHT it may NOT be with rate cuts? Unless, of course, it’s that dang new math and I’ve missed something …

THAT is all for now. Enjoy whatever is left of YOUR weekend …