Good morning / afternoon / evening - please choose whichever one which best describes when ever it may be that YOU are stumbling across this weekends note…
What a week!! Given all that has occurred, I’ll apologize ahead of time as what follows likely longer than any of us might like.
Trumps picked fights with Musk and JPOW — or perhaps their (in)actions have picked the fights FOR him.
Politics of the moment aside, there were some positive turns of events after The Hamptons Hedge went into effect, shortly after the data and week came to a close and so …
ZH: China Grants Rare Earth Export Licenses To Top Three U.S. Automakers RTRS: Boeing Set to Restart Jet Handovers to China Amid Trade Spat SCMP: US-China trade talks round 2 in London ‘positive step’ but rough road ahead: analysts
… With these two talking and taking some actions, I wanted to pause and go out on a limb — don’t normally do this — and offer a suggestion for Team Trump as far as the BBB.
If anyone here has direct contact with admin / officials and can pass this idea along to Bessent & team, well please do …
Call it the OTHER BBB — the big beautiful BET … AND, i’ll show myself out.
BUT first, a (daily / weekly) look at the front-end given monster GOOD NEWS IS <good / bad, please choose one> MOVE post NFP …
2yy DAILY: below 4.05%, recent cheaps …
… as momentum has corrected swiftly from overBOUGHT to now nearly overSOLD which then makes front end much more ‘rentable’ …
2yy WEEKLY: same, in-range correction working off bearish momentum …
… with a MONTHLY look, not provided, showing mostly the same except to say the longer-term momentum studies not nearly as supportive of dip buying.
This in mind and in to the week ahead, with duration supply on offer (3s, 10s and bonds), front end can / will find those looking at curve trades and a place to hide.
Throw into the mix some of Global Wall noting cash (money market) fund inflows very strong — NOT that money market funds (2a7) buying 2s, but to say that there’s still ample demand out there, well … read on if you wish.
AND to go with those levels, a couple / few visuals and NFP-related links from the intertubes … NFP beat BUT …
CalculatedRISK: May Employment Report: 139 thousand Jobs, 4.2% Unemployment Rate
Bonddad: May jobs report: about as poor as an expansiony report could be
ZH: May Payrolls Rise By 139K, Beating Estimates, But Report Shows Sweeping Labor Market Weakness
… despite / because all this ‘good’ (or, less good under the hood) data, DJTs next fight …
ZH: Rate-Cut Odds Plunge After Payrolls Beat; Trump Demands "Full Point Cut" From Powell
… Alrighty, then.
Given Mr. Market moves and what the front-end is saying, I’ll just let all the NARRATIVES (above and below) marinate.
Markets ALWAYS take precedence, at least in my mind and view. Where / how folks are putting their funds matters.
Long of bonds. Short of bonds. Betting on rate CUTS or fewer rate cuts.
Always and forever, it is, IMO, MOST important to gauge the message from the price of money (ie 2yy). Participants saw the data — MIXED BAG, if you will — and lightened up from longs and / or got short.
How’s THAT for a glass half full spin / narrative…and speaking of narratives …
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 … first UP any / all NFP recaps and victory laps …
Employment data underscore gradual deceleration in the labor market, reflecting slowing labor supply and restrictive monetary policy. Nonfarm payroll employment rose 139k in May, and the 3mma stepped lower to 135k. Income developments, meanwhile, remain supportive of household spending.
The May employment report adds to evidence of a gradual slowing in the labor market, but with no sign of an imminent collapse…
Indications from the household survey corroborated this slowing theme…
… Today's report will likely support the Fed remaining on hold in the near term as it assesses incoming data on activity and inflation. With upside risks to both inflation and the unemployment rate, their scope for preemptive policy moves is limited. We retain our assumption that the next cut will not be until December, pending developments.
… Overall, there was some evidence of softening but there doesn't look to be any major counterpoints to the ‘resilient’ labor market assumption that has remained a hallmark of the economic cycle up to the current stage …
Based on data, pulling forward and upwardly revising growth only to pare back later dated estimates … WHY? Why bother … this, my friends, is Global Wall …
The US May jobs report aligned with our pre-release expectations and looks sufficient to keep the Fed on hold through the summer (we think ultimately through year end).
Private sector hiring picked up, as did a proxy for labor income, both positives for economic resilience.
We revise our Q2 GDP estimate upward to 3.7% and pare back Q3 after incorporating recent trade data, which showed a rapid normalization of Q1’s pre-tariff import surge. The broad contours of the forecasts from our recent Global Outlook remain intact.
Charts from the jobs report …
06 June 2025 DB: US Economic Chartbook - May employment: Slow and steady means Fed not ready
May headline (+139k vs. 147k) and private (140k vs. 146k) payrolls were slightly above our 125k estimates. Though a net 95k of downward revisions to the prior two months diminished some of the outperformance in hiring last month relative to expectations, the revised data show very stable private sector hiring trends over the past three (133k), six (146k) and twelve (122k) months. In addition, the breadth of jobs gains across industries remains somewhat narrow with the one-month diffusion index at 50% and three-month only modestly better at 54.4% - both below pre-pandemic levels. Indeed, health care / social assistance (+78k) and leisure / hospitality (+48k) continued to drive the majority of private sector job gains in May and have accounted for 75% of private job growth over the past twelve months.
Regarding the household survey, the unemployment rate was unchanged at 4.24% but this was partly due to a 20bps drop in labor force participation. Though there was a large drop in household employment (-696k), it is not unusual to see sizeable swings from month to month in the household survey. In fact, there was a relatively large flow of people from employed to out of the labor force (971k) while the flow of people from employed to unemployment was up a more moderate 254k – the latter being well within the range over the past year. Given that the median duration of unemployment fell to 9.5 weeks, and permanent job losers remained steady, we do not view the household survey data as indicating the labor market was materially weaker than the headlines suggested. Case in point, the U-6 rate remained steady at 7.8% and those “marginally attached” declined slightly in May.
As we illustrate in our latest labor chartbook, a variety of indicators are telling a similar story in that hiring and firing both remain low with the upshot being slow but steady job growth and an unemployment rate still below some estimates of NAIRU (see “Star light, star bright, which u-star will the Fed see tonight?”). To be sure, there are some pockets of weakness in certain parts of the country and certain sectors. However, the latest labor data provide little reason for Fed messaging on the labor market to change at the June 18 meeting.
May headline payrolls (139k) slightly below the 6-month average (157k) but still solid
Good BUT …
6 June 2025 ING: Decent US jobs market vulnerable to trade uncertainty
A respectable jobs market in May with firm employment growth and stable unemployment, but the risks are skewed toward more weakness in coming months as trade uncertainty and concerns for consumer spending lead firms to become much more cautious on hiring
Beauty of this report clearly in the eye of the beholder …
A slower trend in payrolls along with the weakness in household-survey measures should keep FOMC officials concerned about weakening in the labor market.
Key takeaways
Payrolls slowed to +139k (consensus 126k, Morgan Stanley 125k), and the prior two months were revised down by a cumulative 95k.
The unemployment rate inched up from 4.19% to 4.24% but would have risen further, to 4.7%, except for lower labor force participation.
Weakness was also evident in a sharp decline in the employment/population ratio.
Tighter labor supply, amid immigration restrictions, showed in low unemployment, lower participation, and solid wages despite slowed payrolls.
An(other) UNCH view of the Fed on heels of this jobs report …
• However, prior two months revised down a net 95k
• Unemployment rate ticked up 0.057pt to 4.2%
• Latest data don't change backdrop very much for the Fed
… Today's report was the latest key report ahead of the FOMC blackout period begins (Saturday, June 7), and the report should keep the messaging from the FOMC in a "wait and see" mode. (Note: The next major U.S. report will be the CPI report on Wednesday, June 11 in the midst of the FOMC quiet period.) This wait-and-see approach is consistent with our long-held view that the Fed will hold off from cutting rates before Powell’s term as chair expires (May 2026). Market pricing in fed funds futures shifted slightly, with investors now expecting ~45bps in cuts by year-end versus ~53bps prior to today's report.
Even our neighbors to the North have an opinion …
June 6, 2025 RBC US jobs report: May upside proves trade headwinds have yet to derail services payroll growth
The Bottom Line: This morning’s nonfarm payroll report came in above consensus for May (+139K). The unemployment rate held steady yet again in May at 4.2%. A slew of retirements resulted in a lower labor force participation rate (down to 62.4% from 62.6%). …
Covered wagons comment giving the data a final grade of “S” for satisfactory and as always, it depends how you WANNA see the data … I like options and have etched a couple lines in for you …
Summary The May jobs report was on the softer side, but it was more of a caution sign than a flashing red light in our view. Nonfarm payrolls increased by 139K in May, 13K better than the consensus forecast was expecting, but a combined -95K downward revision to job growth in April and March overshadowed the beat. The industry composition of employment growth pointed to resilience in health care but weakness in more cyclicallysensitive industries like manufacturing, trade and temporary employment. In the household survey, the unemployment rate rose on an unrounded basis from 4.18% to 4.24% amid sizable outflows from the labor force.
… I’ll move on to all other things (not directly NFP related) …
Batting lead-off here, a couple from THE bank of this land …
… AI & Bonds: “Is AI bullish or bearish for US Treasuries?” = big existential question; AI = bullish bonds if U-rate rises allowing productivity (trend = 1.5%) up, unit labor costs down (trend), and inflation falls; AI = bearish if AI causes equity bubble (= higher yields), higher oil prices given energy needs, forces governments to combat AI unemployment via higher deficits/Fed to support deficits via QE/YCC (US dollar -ve); most bond investors believe best to navigate via yield curve steepeners…
The View: Upside, downside After today’s NFP print, the market may pivot from downside surprises on activity data to upside surprises on inflation from tariffs. UK GDP is a hard data read on activity and Japan data on flow post liberation day.
Rates: Flattener pain trade risks persisting on payrolls US: We retain our underweight bias at the front end of the curve; payrolls may continue painful curve flattener move.
… an updated CPI f’cast …
6 June 2025 Barclays: Global Economics Weekly: Crunch time and power play
Incoming data, especially solid US jobs growth, have continued to support market optimism. Growing tensions over the BBB, approaching tariff moratorium deadlines, and future data that increasingly reflect fallout from the trade disruptions could spoil the mood. Next week, US CPI will be important.
…US Outlook Plus ça change... This was an eventful week, with the president doubling tariffs on steel and aluminum, amid the latest set of feuds with Musk, Harvard University, and others. With the job market report pointing to only gradual slowing, we tweak our outlook to build in slightly higher CPI inflation.
…Next week's May inflation estimates should show early imprint of tariffs The upcoming data flow will be highlighted by May inflation estimates, including CPI, PPI, and import prices. We think that core CPI accelerated 3bp, to 0.27% m/m (2.9% y/y), in May, reflecting a tariff-driven pickup in core goods prices that we expect to be partially obscured by another modest decline in used car prices. With energy prices turning downward last month, we estimate that headline CPI inflation rounded down to 0.1% m/m (2.4% y/y) and that the NSA index was 321.591. Our estimates imply a pickup of core PCE inflation of about 0.25% m/m (2.7% y/y) in May, following April's soft 0.12% m/m (2.5% y/y) increase, after accounting for the slight pickup in core CPI and likely firming in PPI inputs for financial services following the prior month's distorted print, amid the short-lived post-"Liberation Day" decline in equity markets.
We will also be tuned to developments regarding US-China trade negotiations, with the president announcing bilateral meetings in London next week.
Best in show, remaining short 10yr breaks and FFF6 looking to enter 2s10s steepener and 10s30s flattener …
… we’re reasonably confident that materially higher inflation (0.4% or above for core-CPI) will be traded as a steepener. In fact, it would probably result in the comparatively rare event of a sharp selloff in 10s and 30s while the front-end of the curve is either unchanged or rallies in outright terms. For at least the initial round of reflation, the FOMC is likely to continue characterizing it as a temporary, one-off price adjustment that doesn’t unto itself warrant a monetary policy response …
… Trading View Short position in FFF6 (entered on June 5th at 96.270) finished the week in the green as our unrealized gains reached as high as 15.5 bp in the wake of NFP. Our stop level is set at 96.240 and our initial target is 96.090 …
… too soon to be thinkin’ June FOMC? I mean we’ve not even gotten beyond CPI …
We expect targeted, tariff-driven price increases to continue in US May CPI, leading to the highest m/m core goods print since Q2 2023. But with effective tariffs still in "ramp-up" mode, June and July seem set to run hotter.
Risks look balanced. Quicker and more extensive pass-through poses upside risks, while another month of negative seasonal factors and lower fuel prices suggests downside risks to airfares and hotel prices.
Recent court challenges to the Trump administration’s broad IEEPA tariffs may have increased uncertainty around the final form of tariffs, raising the possibility of a bigger autumn wave versus our baseline for a more immediate summer surge.
06 June 2025 BNP: June FOMC preview: Until the autumnal equinox
KEY MESSAGES
We expect the June FOMC meeting to again communicate an on-hold stance of indefinite duration. We think the FOMC will pencil one rate cut into the Summary of Economic Projections, but it is a close call between one and none.
As we have said since late 2024, the FOMC will likely remain on hold past year end as it manages the competing nonlinear risks of a serious economic downturn and of entrenchment of high inflation.
… same shop on asset managers Q1 positions …
06 JUN 2025 BNP: Delving into US asset managers’ Q1 portfolios
…Rates: US fixed-income funds shifted toward higher-yielding structured credit while staying underweight government and corporate debt. The GBP, AUD and USD were the most overweight duration markets. Funds remained underweight in CNY, BRL and CAD. Funds remained underweight inflation-linked bonds in Q1…
Been while since i’ve read these guys and I miss ‘em … good stuff here from former Bear Stearns folks …
…Waller also said he prefers “to look at market-based measures of inflation compensation.” However, as we and others have illustrated (including Waller’s former colleague at the St. Louis Fed, Jim Bullard), longer-term inflation breakevens from TIPS are correlated with spot oil prices. In September 2015, for example, we wrote “We have highlighted that oil prices and longer-term inflation breakevens from TIPS appear closely correlated and this relationship has held in recent weeks. In our view, this makes breakevens a poor indicator of future inflation since the current price of oil has virtually no bearing on longer-run inflation (A Poor Read on Future Inflation from TIPS, September 15, 2015). More recently, in Tips from TIPS: Update and Discussions, Don Kim, Cait Walsh, and Min Wei (economists at the Fed and Columbia Business School in the case of Walsh) illustrated that “Over the period since 2014, longer-horizon TIPS IC [inflation compensation] also appears to comove with oil prices, as both IC and oil prices declined notably in 2014H2 and in late 2018.”
If one does have a preference for market-based measures of inflation compensation, we would argue that it is disingenuous to then ignore the message on the real interest rate that the market sees necessary to achieve that implied inflation outlook. Former Fed Vice Chair Rich Clarida formalized this with his forward-looking Taylor Rule that utilized forward real rates from TIPS to proxy the equilibrium real rate of interest (Clarida used both the five-year five-forward rate and the one-year real rate four-years forward). The one-year real interest rate four-years forward is 2.1%, whereas the FOMC’s implied real longer-run fed funds rate from the SEPs is 1.0% (3% nominal fed funds rate and 2% inflation). Using longer-run inflation compensation from TIPS that Waller referenced in his speech and forward real interest rates from that same market, a Clarida-style forward looking Taylor Rule would recommend a 4.7% fed funds rate today versus the current 4.3% effective fed funds rate (with the unemployment rate in May at the Fed’s estimate of its longer-run rate; if, as Clarida has done in the past, we use CBO and SPF data to estimate the noncyclical unemployment rate and future unemployment rate, the recommended fed funds rate is 4.3%). In short, Waller said he might support “good news” rate cuts in the future, but if market-based inflation compensation is part of that assessment, we would recommend a consistent reading of TIPS—both implied inflation and real rates. On other policy rules, the Cleveland Fed calculates recommended fed funds rates based on seven simple monetary policy rules and the median recommended rate for the second quarter of 2025 is 4.4%. The Atlanta Fed publishes a Taylor Rule Utility and the median of the 30 different fed funds rate recommendations using different policy rules is a 4.6% rate. Judged by these rules, policy appears to be appropriately positioned based on current economic data…
… a rather large German institution on 10s being 38bps CHEAP to their FV models, on speculative positions — record net shorts in 5s and ultra 10s caught MY eyes (as it saying the exact opposite — sort of — as allstar dude was sayin other day … HERE) … AND Germany weighin in w/a note on the Fed …
Valuations: There are some dislocations in market pricing compared to our fair value model. The 10-year UST is trading 38 basis points cheap relative to our model, while 10-year USD breakevens appear too low following the sharp increase in the University of Michigan's 5-10 year inflation expectations. This increase has contributed significantly to the recent deviation from market pricing. On the EUR side, the 10s30s term premium has begun to look slightly high relative to our model. As we highlighted in our recent piece, the seasonal patterns ahead of us are less supportive of higher term premium trades during the summer months.
Liquidity: We observed a mild deterioration in on-the-run Treasury liquidity (bid-ask spread and order book depth) after Liberation Day, but it has since recovered to levels seen prior to April 2nd. This temporary deterioration is also evident in our treasury market illiquidity index. In terms of tenor buckets, we saw larger spline errors at the long end (10 years+) of the curve compared with the start of this year. While the temporary dislocation in Treasury Inflation-Protected Securities (TIPS) around Liberation Day was corrected quickly after the first week of April, their illiquidity has begun to increase again over the past two weeks.
Positioning and Flows: The SMRA money manager survey has retreated from its recent peak, suggesting that fund managers are becoming less bullish on duration recently. Mutual fund duration betas have increased from their recent lows in March, indicating that funds are becoming less underweight duration. Our CTA positioning indicator is in positive territory, suggesting that systematic funds are long duration. Our estimates for US pension rebalancing fixed income flows for Q2 have moved into negative territory for both the public and private sectors.
Speculators sold 63K and 73K contracts in FV and UXY to extend their net short positions to record -2,397K and -372K contracts, respectively.
06 June 2025 DB: Fed Notes - Is the Fed at neutral?
In our recently released outlook update, we noted that although our baseline view on the economy had not changed materially, there has been a notable shift in the distribution of risks (see “US outlook: Easy come, easy go, little high, little low”). For our Fed view, which continues to expect only one rate cut this year, risks are no longer skewed towards earlier and more aggressive cuts.
We have long been in the higher r-star camp (see “How positive r(*) you?”). The evolution of the economy fits with this view, as recent data are consistent with the Fed being at or close to neutral. We show a compelling chart to this effect in this note. If this is in fact the case, risks to the Fed should be viewed somewhat more two-sided, rather than clearly skewed towards substantially lower rates, especially ahead of an expected reacceleration in prices.
… Recent data fit with the idea that risks around our Fed view are more balanced. Over the past year, the economy has behaved as if the nominal neutral rate is around 4.3%, the current level of the fed funds rate.
The two charts below show this clearly. As the Fed has lowered the fed funds rate to 4.3% and maintained that level over the first half of 2025, headline PCE inflation has fallen to 2.1% -- one tenth above the Fed’s target – and the unemployment rate has converged to 4.2% -- consistent with the median value of the longer-run unemployment rate in the Fed’s SEP. The second chart below, which depictsdeviations of the fed funds rate from 4.3%, headline PCE inflation from 2%, and unemployment from 4.2%, shows this most strikingly – the economy appears to have converged to a steady state with the current setting of monetary policy, a convergence that is so smooth it looks like the simulation of a model economy. You would be hard pressed to identify the historic shocks from the Fed’s aggressive tightening cycle in 2022, a banking crisis in early 2023, and a record spike in tariff rates in 2025.
Finally, from one of German banks favoured stratEgerists …
As we await the US employment numbers, it is worth taking a step back. While everyone is focused on the impact of tariffs, the real story for the US economy is the collapse in immigration: down more than 90% compared to the run rate of previous years, equivalent to a slowing in labour force growth of more than 2 million people. This represents a far more sustained negative supply shock for the economy than tariffs. Last year we were writing that the US was benefitting from a goldilocks mix of high employment growth and low wages precisely because of high immigration numbers. If recent immigration trends continue, it must follow that over the course of the year the reverse will happen. As the 2022 energy shock showed, a negative supply shock is not good news for a currency.
… like front-end steepeners? these guys, too
June 7, 2025 MS: The End of a Trend | US Rates Strategy
A repricing higher of the fed funds forward curve has occurred just as labor market surprises turn negative. A mispricing of labor data and near-term catalyst from a downside surprise in May CPI, make good entry to trades that benefit from more cuts; enter SFRU5U7 curve steepeners.
Key takeaways
The market-implied fed funds forward curve has repriced higher, as investors pushed out the timing – and reduced the magnitude – of Fed rate cuts.
We find this repricing higher of the fed funds forward curve in stark contrast with labor market surprises turning negative this week, hitting lows of the year.
A downside surprise in next week’s May CPI release could catalyze further position squaring in crowded SOFR futures curve micro-flattener positions.
Mispriced labor data and a near-term catalyst for a technical reversal in SOFR futures curves makes a good entry on a trade that benefits from more rate cuts.
We suggest investors enter SFRU5U7 curve steepeners, as this also protects against risk of deficit expansion in the Senate version of One Big Beautiful Bill.
…Risks to this trade are attention turning to the dot plot possibly showing one cut in 2025 or a dot plot that shows a few dots that signal no rate cuts. Core goods inflation surprising to the upside on stronger tariff impacts is also a risk.
… the same shop also ‘keepin the faith’ NOT straying too far from the steepener reservation a bit further out the curve …
June 6, 2025 MS: Keeping the Faith, Staying in UST Yield Curve Steepeners | US Rates Strategy
Since steepening to new heights after 'Liberation Day', the Treasury curve has oscillated in a range. Structured well, yield curve steepeners don't cost much relative to the steepening we envision and the skew of risks around our view. We continue to suggest investors stay in yield curve steepeners.
Key takeaways
We think the post-payroll bear-flattening of the yield curve reflects position squaring ahead of the US CPI report and June FOMC meeting.
Treasury yield curve steepeners structured between the intermediate sector and the long-end limit negative carry and expected roll - increasing staying power.
CPI fixings suggest downside risk to the Bloomberg consensus for next week, and we think that investors already expect one less rate cut in the June dot-plot.
Other risks remain related to US-China trade, so we still see favorable risk-reward in US Treasury 3s30s curve steepeners, term SOFR 1y1y vs. 5y5y steepeners.
The USU5 contract's CTD switched from the 4.75% Feb41s to the 4.75% Nov43s this week. We find 50:50 odds that the Feb41s or Nov43s become the CTD.
Another CPI precap …
June 6, 2025 MS US Inflation Monitor: CPI Preview: A modest tariff push
Core CPI at 0.26% m/m in May (2.9% y/y). We expect a modest push from tariffs with firmer new cars, apparel, and other goods such as household appliances. Services inflation moves sideways. We see headline at 0.17% m/m, 2.5% y/y, NSA Index: 321.776.
6 Jun 2025 NatWEST: US Weekly Economic and Strategy Brief
US Economy Preview: The focus in the upcoming week’s economic calendar shifts to inflation. We expect the total CPI advanced by another 0.2% in May, as firmer core prices (+0.3% after +0.2%) likely offset the drag from lower energy prices. Base effects from last May will also help push up the year/year prints for the headline CPI (2.5% after 2.3%) and the core (3.0% after 2.8%). We project rebounds in both the overall (forecast +0.4% after -0.5%) and core (+0.1% after -0.1%) PPI gauges. In addition to the May inflation data, the June preliminary reading of the University of Michigan’s consumer sentiment measure is due. Inflation expectations in the survey will be a focus. In May, the year-ahead measure inched up to 6.6% while the 5-10-year gauge edged to 4.2% from 4.4% (a 34-year high).
US Rates: US rates markets are at present pricing a significant increase in the probability of “soft” default – the risk that investors are not repaid in real terms, as opposed to not being repaid in nominal terms.
We illustrate that the recent recovery in real term premium has not been reflected in a wider equity risk premium. The “all in” 20y real rate and the real term premium are already at levels that historically have been associated with a higher probability of negative equity returns. We think the probability of a disorderly restoration of the equity term premium is elevated. Equity investors should see high strike rate protection as a bearish protection for their portfolios.
The chart illustrates the interaction of the real term premium with the equity risk premium during and after quantitative easing. The idea behind quantitative easing was that if large scale asset purchases flattened the real term premium, then investors would be “crowded” out and forced to enhance returns by taking risk – equity risk, credit risk, etc. The real term premium flattened rapidly during the first half of 2014, when the ECB joined the Fed in asset purchases, in that case crowding capital offshore into US risk assets and intensifying downward pressure on the real term premium. This made equities look cheap, and as a result the equity risk premium compressed as well.
The Fed risks roiling asset markets with insufficiently hawkish policy via discounting risk, in contrast to “level of earnings” risk typically engendered by overly hawkish policy.
… covered wagon folks on recent FOMC mins ahead of CPI (precap included) and next FOMC …
June 6, 2025 Wells Fargo: Weekly Economic & Financial Commentary
United States: An Orderly Slowing, for Now The latest data signal economic growth is moderating but holding up through May, leaving firms generally still reluctant to let go of workers. Although growth is slowing in an orderly fashion for now, we're only beginning to see the effects of tariffs and look for growth to moderate in the second half of the year…
… Interest Rate Watch: This Might Take a Minute The minutes from the Fed's May policy meeting suggest policymakers still place greater emphasis on risks of cost pass through rather than rising unemployment. Recent survey evidence suggests businesses have or believe they can pass on a decent portion of tariff-related costs, but it may take some time for it to materialize in the hard inflation data. We believe the FOMC will hold at its June meeting and is unlikely to adjust policy until it gains further clarity.
Summary May's CPI report will be an important test of the speed and magnitude to which higher tariff rates are being passed along to the consumer. We expect to see only a moderate advance in headline CPI (0.15%) in May as gasoline prices fell on a seasonally adjusted basis and food inflation appeared tame. But excluding food and energy, inflation looks to have firmed on the back of higher goods prices. We estimate the core CPI rose 0.27% in May.
… Moving along TO a few other curated links from the intertubes, which I HOPE you’ll find useful …
Hopefully friend / former clients in this space are on the right side of this history, detailed by Torsten Slok …
June 7, 2025 Apollo: Public Fixed Income Managers Underperforming Their Benchmark
Over the past 10 years, 98% of active managers in Treasury fixed income funds have underperformed their benchmark. For active managers in public investment grade credit, the share is 82%, and for active managers in public high yield, the share is 79%. In fact, the data below from S&P shows that over the past decade, active managers in public fixed income have underperformed their benchmarks across all strategies, see chart below.
… allstars on 10s (via TNX)
AllStarCharts: Here's The Big Catalyst for Tech Stocks
.. A big theme we discussed on the call was the potential secular shift in yields and whether or not we should expect a prolonged period of rising interest rates moving forward - looking out over a decade:
For us, it all comes down to timeframes.
Yes, is a longer-term shift in rates probably in the cards. Yes probably.
But what does 10-15 years from now have to do with this quarter?
Probably nothing.
Every time Bonds get down to these levels, they come in and buy them.
Are you betting that this time is different?
Director of Research at ASC Steve Strazza has been pounding the table about a bounce in bonds here being favorable for speculative growth stocks.
If Bonds, in fact, do get a bounce here, then the bid in high growth stocks should remain in place.
A rising yield environment, at least here in the short-term, would likely lead to pressure in high growth stocks in Technology, Communications and Consumer Discretionary.
So all eyes on Bonds here…
Notes on jobs from the beach (I know, right …) …
Friday, June 6, 2025 Calafia Beach Pundit: Jobs growth is moderate but likely to slow
A quick post focusing on today's May '25 jobs report.
Anyone who has followed the monthly jobs numbers for a few years knows that they are volatile and subject to significant revisions from time to time. I've tried to correct for this by stepping back and trying to see the long-term trends and whether they are changing.
As this chart shows, private sector jobs (the ones that really count) have been growing at an annual rate of a bit more than 1% for most of the past 18 months. Over the past decade, private sector jobs have grown at an annualized rate of 1.3%, while real GDP growth has been about 2.3% per year. So what we are seeing today is roughly par for the course; nothing to get excited or worried about. Except that the number of immigrants entering the labor market is in the process of slowing rather dramatically, thanks to Trump's closed borders and aggressive efforts to deport illegals. My back of the envelope calculation says that without any meaningful policy changes, jobs growth is going to slow to somewhat less than 1% a year—possibly to as low as 0.6% a year by the end of this year. This is going to leave us with an economy that struggles to grow 2% a year.
This is not the stuff of booms. For a booming economy we need to see significant reductions in tax and regulatory burdens. Fortunately this is something that Trump is working hard to achieve, so there is hope for a better economy in the years to come.
Positions matter and seems that specs sold a bunch of long bonds and shorts perked up ahead of NFP … well done …
7 JUN 2025 Hedgopia CoT: Peek Into Future Through Futures, How Hedge Funds Are Positioned
I mention this in direct response TO whatever the allstar dude was sayin other day … HERE … clearly without A Terminal, I’ve not got an informed opinion of my own so trying to do best I can, playin’ along here at home … Whatever, just sayin…
Commercial HEDGERS are separate and diff from speculative positions.
For every buyer there has to be a seller.
It’s math. Just how it works.
However you SPIN it, well … everyone has a right to their own opinion, just not their own set of facts.
Don’t do what I am now forced to do and believe everything I read on the intertubes …
And speaking of which, Chris Kimble on JUNK …
at KimbleCharting
Junk Bonds and Equal Weight S&P 500 have created lower highs for the past 8 months. Breakout test for each in play this week!
… AND yield curve as recession indicator is BACK … not just ANY yield curve, THE yield curve — the financial — 3m10y …
June 06, 2025 McClellan Financial: Yield Curve’s Predicted Recession Is Arriving
…The inversion of the yield curve which occurred from November 2022 to November 2024 has been telling us to expect a dip in the economy. This usually works with about a 15-month lag time, although the actual lag can vary slightly from that 15-month period. The current economic slowdown which is appearing in the latest numbers for real GDP is a little bit late in getting started.
If we count 15 months forward from the last month of inversion in the 10-year to 3-month Treasury yield spread, that takes us to February 2026. So a recession appearing anytime between now and February 2026 would still be right on time. And remember that the actual lag time can be a few months off, and that is normal.
Back in 1974, Julian Shiskin published an article in The New York Times in which he proposed that a formal definition of a recession should be 2 consecutve quarters of negative GDP growth. Shiskin was a prominent economist and former Commissioner of the Bureau of Labor Statistics, and he proposed this rule of thumb as a practical way to identify recessions based on GDP data. The concept was not entirely new, though, as economists had long used declines in economic output to describe recessions, but Shiskin’s formulation popularized the specific two-quarter metric. It has never become the "official" definition of a recession, though, because economists do not want to abandon their prerogative of getting to declare when a recession occurs according to their own preferred metrics…
… The yield curve thus far in history is undefeated in terms of forecasting economic recessions when it sees an inversion. So it would be quite unusual if we somehow did not get a recession in 2025. That is an important point to keep in mind as we all evaluate the various tariff proposals, and the commentary about those proposals. The politicians in Washington DC have a small ability to change that, for better or for worse, but the Fed has more of an effect when it allows the yield curve to invert. It has thankfully disinverted now, but we are still waiting for the 15-month lag to go by.
Tom McClellan Editor, The McClellan Market Report
Brent Donnelly’s weekly … MUST SEE TV … a few (rates related)excerpts …
June 6, 2025 Spectra Markets Friday Speedrun: Soft Landing but also Rapid Unscheduled Disassembly
…… But the nonfarm payrolls release itself came in on the screws and I, like others, gave back all my profits in bonds.
So, while the US jobs market shows cracks, it hasn’t cracked. And we wait. The dates on the calendar now are:
China/US trade talks 13JUN
Big Beautiful Bill target date for House 04JUL
End of tariff pause 09JUL
…Interest Rates
The next chart kind of says it all for US yields. We tried the bond vigilante trade and yields peaked the day the Big Bill passed the Senate (buy the rumor / sell the fact). Then we bottomed on Wednesday’s weak data (ADP and ISM) before yields ripped higher Thursday, well before the Goldilocks NFP. The market is desperately seeking a narrative and finding little that is worth chewing on for more than a few days.
Japanese 30-year yields, which were part of the bond vigilante fear trade, have also come off the boil and are back below 3%.
I like the expression “come off the boil” because it’s not some cryptic thing where you have to Google the etymology from 1608 Norse or whatever. It’s just like … It was boiling. And then it wasn’t.
Speaking of boiling… You know the boiling frog metaphor is false, right? We should stop using it. It’s scientifically incorrect and blatantly froggist. Quoting an Aussie article here:
Dr Victor Hutchison, emeritus research professor from the Department of Zoology at the University of Oklahoma, is a herpetologist and has dealt with frogs all his professional life.
Indeed, one of his current research interests is “the physiological ecology of thermal relations of amphibians and reptiles to include determinations of the factors which influence lethal temperatures, critical thermal maxima and minima, thermal selection, and thermoregulatory behavior”. Now ‘critical thermal maxima’ means the maximum temperature that the animal can bear.
Professor Hutchison says: “The legend is entirely incorrect! The ‘critical thermal maxima’ of many species of frogs have been determined by several investigators. In this procedure, the water in which a frog is submerged is heated gradually at about 2°F per minute. As the temperature of the water is gradually increased, the frog will eventually become more and more active in attempts to escape the heated water. If the container size and opening allow the frog to jump out, it will do so.“ …
EX govt jobs …
Jun 6, 2025 WolfST: Excluding Federal Government Jobs, Payrolls Grow by 161,000 in May, Wages Jump, Despite All Moaning and Groaning
Federal government jobs fell by 22,000, to the lowest share of total payrolls since… whenever.
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,
Good idea.....Better chance with Scottie, then at the Belmont, today