weekly observations (06.16.25): FOMC precaps, steepeners, flatteners (depending on spot of the curve), 5000yrs of rates, another record short FV, 'BIG' numbers...
Good morning / afternoon / evening - please choose whichever one which best describes when ever it may be that YOU are stumbling across this weekends note…
Narratives can and will change before end of the weekend.
Whatever it was one might have thought Friday, before attempting to put some hay in the barn, hedge up portfolio, and / or protect the P&L before engaging in ones version of ‘The Hamptons Hedge’, well … lets just say the way mkts ENDED — all things sold — leaves us all with more questions than answers …
ZH: Gold Closes At Record High, Oil Soars As Retail Buys WW3 Dip In Stocks...& Loses
… I’ll likely NOT be watching markets open Sunday night as I might have, in years past. To those who are, or will be trying, May The Schwarz Be With You …
What follows will be mostly about the holiday shortened week ahead with a focus on geopolitical impacts on Global Wall and a healthy dose of FOMC precaps.
First UP, isn’t it amazing when TLINES work? This is why we lean on them, along with funDUHmentals … and with that in mind, let’s break out a rates chart, a protractor, a fresh box of crayola and get to work …
2yy WEEKLY: 4.40 - 3.40, middle = 3.90% … we ended week at 3.95 and so, (bullishly declining)TLINE support up nearer 4.15 while (bearishly rising)TLINE resistance down nearer 3.60% … for somewhat MORE, I’ll be watching 55dMA (not shown) down around 3.88 (held in the week just past) while 200dMA up nearer 4.02 (also helping keep front end in check) …
… momentum, meanwhile, has been becoming more overSOLD and may be on verge of bullish cross BUT I’d suggest more cautious approach into the FOMC (and frankly, summer time) … at the same time, noting bullish summer-time seasonals evidence themselves in the rates complex …
I’ll quit while I’m behind — 20yr auction on Monday will likely be under further review given last month caught everyone’s attention and increased chatter of how bonds were for losers.
The week just passed definitely changed that view … Alrighty, then.
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 …
Bank of the land with an update on (EM)flows AND one little visual caught MY attention and so …
…The Price is Right: contrarian long bonds to keep working…US govt spend growth down from 10% YoY in Dec to flat, Trump needs to keep gas prices down despite Israel-Iran, tariffs proving deflationary in US/more growth -ve in RoW, weakening US labor market, investor focus set to shift from 57 global rate cuts in H1 to Fed cuts in H2…
2020s: past 5 years interest rates up from 5000-year lows to more historical norms as great disinflation of 1980-2020 ended by start of fiscal excess & end of globalization.
2020s: era of big secular shifts in society (inequality to inclusion), policy (monetary to fiscal), trade (globalization to isolationism), all inflationary trends, all say bonds in earlystage secular bear market, won’t end until bond vigilantes force governments to end big deficits and/or AI incites jump in productivity/fall in labor costs via unemployment.
2025: that said, nothing more contrarian than being “long the long bond”; we say good reasons to be cyclically long bonds in ’25 underappreciated…why bond returns +6% YTD.
… 2000s: central banks & globalization primary drivers of the global economy & financial markets past 40 years, but great disinflation aided and abetted past 20 years by technological driving inflation & wages lower on Main Street, and profit margins & asset prices on Wall Street.
2020s: acceleration of AI dispersion, to be followed by quantum computing, tech remains the world’s favorite secular trend, monopolistic US tech companies (e.g., the Magnificent 7) world’s equity market leadership, would be almost a surprise if Minor League AI bubble didn’t turn Major League in coming years.
A global economic read with a focus on the US / Fed …
Markets and central banks are caught between fast- and slow-moving drivers. While economic data have yet to reflect much of a tariff effect and trade negotiations are slow, fresh policy threats and geopolitical risks continue to come in rapidly, causing USD depreciation and swings in oil and gold.
…US Outlook Much too early for a Fed pivot Although May's inflation estimates were soft, we retain our view that it is just a matter of time until cost-push pressures from tariffs feed through to consumer prices. We doubt the FOMC will take much signal, with next week's projections likely to show one fewer cut this year than in March.
May's CPI estimates were much softer than expected, with the core reading up just 0.13% m/m (2.8% y/y) and translations pointing to a 0.15% m/m (2.6% y/y) rise in core PCE. Even so, we retain our view that it is just a matter of time until cost pressures from new tariffs feed into prices, consistent with surveys showing that businesses will eventually pass through cost shocks.
The US trade policy picture remains in flux. US-China trade discussions in London did not break much ground, essentially rfeewinding to the truce negotiated in Geneva, which is still set to expire on August 10. The president is threatening to restore country-specific tariffs following the end of that 90-day pause on July 9, as well as a further boost to sectoral tariffs on autos.
With the FOMC widely expected to remain on hold next week, focus will be on the updated SEPs. We expect the median participant to take on a more stagflationary flavor following April's tariff surprises, despite eased financial conditions from the weaker dollar, with higher inflation and downgraded GDP growth in 2025. The dot plot is likely to show delayed rate cuts, with just one this year and three in 2026…
We expect the FOMC to keep policy rates unchanged at 4.25-4.50% amid elevated uncertainty. We think the SEP will show upward revisions in inflation and unemployment projections and lower growth. We expect the dot plot to show one 25bp cut this year and three in 2026.
… We expect the new Summary of Economic Projections (SEP) to show higher projections for inflation and to a lesser extent for unemployment alongside lower GDP growth. With participants balancing tensions on both sides of the mandate and inflation revising up relatively more than unemployment, we think participants will deem it appropriate to show delayed rate cuts, despite calls from the administration to lower rates by a full percentage point immediately. Accordingly, we expect the median dots to show one 25bp cut this year, to 4.1%, three cuts in 2026, and one in 2027, as well as an unchanged longer-run dot at 3.0% …
…We retain our baseline expectation that the FOMC will deliver a single 25bp rate cut this year, in December, with the economy slowing, the unemployment rate edging up, and the tariff-related inflation bump showing signs of having peaked.We see risks tilted toward delayed rate cuts…
Putting some hay in the barn (best in show for a reason) as this shop booked profits in short 10yr breaks and from short FFF6 … looking to play for flattener (10s30s) and / or steepener (2s10s), so take your pick …
In the week ahead, the US rates market will have a variety of potential market-moving events from which to derive trading direction. Thursday’s market holiday and an effectively empty data calendar on Friday will result in the week’s macro influences being concentrated in the Monday-Wednesday time frame. The marquee event will be Wednesday afternoon’s FOMC announcement. The Fed won’t make any changes to policy rates and will err on the side of signaling that the Committee remains in wait-and-see mode, and is likely to retain this stance for the foreseeable future. Of course, the big debate is how long is the 'foreseeable future' in the current environment? At least two FOMC meetings. Therefore, it follows intuitively that the first potentially 'live' meeting is September, and the market is currently pricing in 19 bp of cuts by the end of Q3. While there is certain to be fluctuations in these expectations in the coming weeks, we are uncomfortable with the notion that it’s time to fade these odds at the moment.
The biggest wildcard in this regard will be the Fed’s updated economic projections. The last time the SEP was refreshed was the March 19th FOMC meeting. A lot has changed in the macro landscape during the last three months and investors are eager to learn the Fed’s assessment of the current situation. We’re somewhat apprehensive insofar as we suspect investors are looking for greater clarity than the Fed is in a position to offer. After all, Trump continues changing the rules for global trade at such a pace that it’s difficult for any participant in the real economy to have a high conviction stance, even the Fed. This won’t prevent the market from assuming that Powell has a handle on the situation and is prepared to signal policy intent accordingly.
It’s with this backdrop that the SEP will be closely scrutinized. We don’t see any compelling reason to change the growth or unemployment projections and even if they are shifted, it will likely be a slight adjustment and a non-event for the US rates market. Core-PCE estimates, however, will be the highlight – along with the 2025 fed funds projection. In March, core-PCE for 2025 was expected to be 2.8% (up from December’s 2.5% level). In light of the reciprocal tariffs and subsequent escalation of the trade war, there is a case to be made for a >3.0% projection. How far into 3-handle territory the Fed is willing to push it remains a key wildcard that could trigger meaningful bearish price action in the front-end of the curve. Similarly, the path toward signaling 25 bp of cuts during the balance of 2025 is relatively straightforward, and it would only take two dots to message that 50 bp of cuts is no longer the Committee’s operating assumption.
The economic data includes May’s Retail Sales report with the headline seen dropping -0.7% on a monthly basis, although the decline is largely a function of gasoline prices as the Control Group is seen rebounding +0.3% after dropping -0.2% in April. While there are some concerns regarding the health of the consumer, from a broader perspective, spending has held up remarkably well, even as investors remain wary of the downside risks. Monday’s session is expected to be quiet aside from the $13 bn 20-year auction. Recall that it was the 1.1 bp tail at the May 20-year refunding that contributed to the sharp selloff last month, and added fuel to fears of a buyers’ strike in US Treasuries. The solid take-down of 10s and 30s should function as an offset to any required concession/tail for June’s 20-year, although we’re cognizant that the market will be closely watching the results, and many will view it as an opportunity to rekindle the bond bearish narrative. In the event of such an outcome, we would fade any post-20s selloff as an overdone reaction to a sector struggling for relevance…
Our base case is that the latest developments in the Middle East is not a prelude to a further severe escalation.
That said, the immediate market reaction looks complacent to us – we expect a further rise in geopolitical risk premiums over the coming days.
A severe escalation of tensions in the Middle East, which disrupted oil and gas flows through the Strait of Hormuz, could see the oil price rise above USD100/bbl while gas prices could double, according to our analysis.
We do not believe any parties have an incentive to move towards this extreme scenario, but each escalatory step in tensions raises the chance of a miscalculation.
… another week passes and another record short fv …
… Speculators sold 74K contracts in FV to extend their net short positions to a new record high of -2,471K contracts…
… and as far as positioning and flows goes …
13 June 2025 DB: Investor Positioning and Flows Will Geopolitical Risk Derail The Grind Higher?
The escalation in the Middle East brings into focus the playbook for geopolitical shocks and risks, which entails sharp equity selloffs, which is intuitive, but also surprisingly quick recoveries, which is not, especially as the market has often rallied in the past without any clear signs of de-escalation. The typical pattern is for the S&P 500 to pull back about -6% in 3 weeks but then rally all the way back in another 3. In the present context, equity positioning is already underweight (-0.33sd, 28th percentile), and a -6% selloff would need it to fall all the way to the bottom of its usual range.
In our reading, buying driven by risk appetite and momentum on the long side as well as by covering on the short side has waned over the last 3 weeks, consistent with discretionary investors staying actively near neutral (-0.14sd, 37th percentile). But why then had the market been grinding higher? We see it as reflecting rising equity exposure for systematic strategies (-0.41sd, 27th percentile) on the back of lower vol, and continued strength in corporate stock buybacks. We see both dynamics remaining largely intact (see page 6 for a list of direct company quotes). So, will geopolitical risk derail the grind higher? We think it is unlikely absent a significantly larger escalation which starts to impact the economic outlook.
… same shop with a monthly inflation chartbook / update and a slide which Global Wall unlikely to publicize much, and so, I will :) …
13 June 2025 DB: US Inflation Outlook: Tariffs loom large over otherwise good inflation data
… Recent market rally will boost portfolio management in the near term
… Details within the CPI and PPI point to 0.14% core PCE print for May
Progress on core PCE seems to have stalled…
… same German institution with their FOMC pre-cap ..
13 June 2025 DB: June FOMC preview: Wouldn't it be nice for the Fed to keep a little deuce cut in 2025?
We expect the Fed to hold rates steady at the June FOMC meeting and mostly maintain existing signals about policy. The statement, Summary of Economic Projections (SEP) and Chair Powell's press conference will all likely indicate that the Fed can remain patient with adjusting policy as they await clarity on the details of -- and fallout from -- the administration's policies.
Updated projections for 2025 are likely to show weaker growth, higher inflation, and could show a softer labor market. With these adjustments, our baseline is that the median dot only shows one rate cut this year, though we admit it is a close call. Beyond 2025 we expect only modest adjustments to the SEP, with the 2026 median fed funds rate moving 25bps higher, in part supported by a small increase in the long-run dot.
Powell's press conference is unlikely to provide strong guidance about the policy path ahead and instead will emphasize elevated uncertainty. We detail topics that could come up in the Q&A, including the Committee's views on the impact of trade, fiscal, and immigration policies, whether neutral has risen (see "Is the Fed at neutral?"), if Powell would consider staying on the Board when his term as Chair ends (see "The next focus for markets: Powell's replacement"), and recent proposals from Congress that would strip the Fed of its ability to pay interest on reserves (see "Ending IORB wouldn't do what some think").
… seems to me there’s wide agreement of NO agreement …
13 June 2025 ING: Inflation doubts to keep the Fed on hold until December
Amidst a slight cooling in economic activity, inflation has been making decent progress towards the 2% target. However tariffs and a spike in energy prices mean a mini-resurgence is likely to delay the Fed’s abilities to cut rates until the final meeting of the year
…But inflation challenges mean it could be delayed
However, tariffs do risk higher goods prices and this is likely to keep the Fed cautious. The Beige Book commented that “there were widespread reports of contacts expecting costs and prices to rise at a faster rate going forward. A few Districts described these expected cost increases as strong, significant, or substantial”. So while recent benign inflation prints are welcome, we think investors should be braced for the month-on-month rates to pick up to 0.4% or even 0.5% from July onwards. Tariff-induced price hikes could be amplified further if the spike in energy prices in the wake of the Israeli attacks on Iran is sustained.
We therefore think September is too soon for the Fed to be comfortable cutting interest rates. We will only have data for July and August by that point and we don’t think there will be enough evidence of labour market stress to offset the fears that near-term elevate inflation readings could persist.
Housing costs could help to offset the impact of tariffs
Source: Macrobond, ING
A December cut, potentially of 50bp, is our call
Instead we think that December is the more likely start point for the Fed to start cutting interest rates. We see tariffs and energy costs prompting elevated MoM inflation prints for July through to October, but thereafter we are looking for much softer readings. The squeeze on spending power from higher goods and energy prices could lead to cuts to discretionary spending that impacts the service sector and cools inflation faster there. At the same time the jobs market is cooling and wage inflation is slowing rather than rising, which is what allowed the supply shock post pandemic to morph into rapid inflation that nearly hit 10%. There is also evidence of softer housing-related inflation on the way with new tenant rents already turning negative. Housing accounts for around 40% of the core CPI basket by weight and that process will help inflation to return to 2% in 2026.
We don’t disagree with the market pricing of 50bp of cuts this year, but rather than 25bp moves in September and December, we are favouring a 50bp move in December followed by three 25bp cuts in 2026. This would be a similar playbook to the Federal Reserve’s actions in 2024, where they waited until being completely comfortable to commit to a lower interest rate environment.
… I never take the use of this word for granted so this one makes me pause …
June 13, 2025 MS: Cross-Asset Correlations: Bond-Equity Correlations Conundrum
Front-end UST correlations with equities are at lows while long-end UST correlations with equities have kept rising. This dislocation highlights investors' shifting views on Treasuries as safe-haven assets under heightened fiscal uncertainty, but we believe correlations can eventually normalize.
Key takeaways
The difference in correlations to stocks has never been larger between front-end and long-end bonds.
While UST 2Y-stocks returns correlations are near 5-year lows, UST 30Y-stocks returns correlations are positive and on the rise.
Previous periods of positive equities-Treasuries returns correlation have been associated with stagflation fears, yet we think this time is different.
30Y USTs have been behaving like risk assets due to their higher term premium, and have become less attractive as a diversifier.
Still, history suggests correlations can and should normalize, as they are usually governed by growth and inflation trends rather than by short-term factors.
… And with that in mind, same firm on the day that was as well as an economic note on the weakness that lies ahead as well as firms FOMC pre-cap …
Oil prices surge amid geopolitical risk in the Middle East; rising inflation expectations weigh on global duration; USTs cheapen despite risk-off momentum; JGBs outperform; USD and commodity-currencies gain; Thailand aims to have trade deal by July 9; DXY at 99.14 (+0.2%); US 10y at 4.399% (+3.9bp).
Crude oil prices surge higher (Brent: +7.0%) amid heightened geopolitical tensions in the Middle East which intensify supply concerns; Brent crude oil futures mark the highest level since March.
The oil rally raises inflation expectations across the globe with sharp rises in inflation swap yields (1y Euro Area: +14bp; 1y US: +12bp) fueling sell-off pressure in global duration (10y Bund, UST: +6bp; 10y UST: +4bp)…
June 13, 2025 MS: US Economics Weekly: Weakness still lies ahead
This week's inflation data showed no clear signs of a tariff push, but we expect higher goods inflation in coming months. Slower core services may give the Fed confidence that the inflation pickup will be transitory. With higher inflation ahead, weaker consumption growth is still in front of us.
Key takeaways
CPI core goods prices fell 0.04% in May with no clear tariffs sign. We forecast core PCE +0.17% m/m. Goods prices that accelerated have larger weight in PCE.
This week's data do not change our view that goods inflation will step up, but they may give the Fed further confidence that policy is well positioned.
Labor income and consumption growth have remained robust, but the weakness is still ahead. We expect meaningful slowing into year-end as inflation picks up.
June 13, 2025 MS: Federal Reserve Monitor: June FOMC Preview: Uncertainty Still Dominates
We think the Fed will continue to emphasize that policy is "well positioned", but we expect the forecasts to show slower growth and firmer inflation as members factor in recent tariff announcements.
Key expectations
We expect the Fed to stay on hold at its June meeting and make no change to its balance sheet policies.
We expect the Summary of Economic Projections to show slower growth, firmer inflation, and a still-low unemployment rate, but we think the median member will continue to project two rate cuts this year.
In the press conference, we expect Chair Powell to emphasize policy is "well positioned" and the Fed is in "no hurry". We continue to expect the Fed to be on hold in 2025 before cutting in 2026.
Our rates strategists suggest investors maintain positions for a steeper yield curve – UST 3s30s steepeners and term SOFR 1y1y vs. 5y5y steepeners – as they expect a lower market-implied trough rate.
Our FX strategists continue to recommend short USD positions versus EUR and JPY as yield differentials and policy premiums move in a USD-negative direction.
Our agency MBS strategists remain neutral on the basis.
Economic Comment: June FOMC meeting preview… hawkish We expect no change to the stance of policy at the June meeting. We expect little change to the post-meeting statement. We expect Chair Powell to highlight the uncertainty in his press conference, which may even undermine the staying power of the Summary of Economic Projections. However, with those new projections we expect a relatively hawkish tone to the meeting. The May gain in nonfarm payroll employment was good enough to signal staying on hold, and on hold for longer than was signalled in March. Thus, we expect the median dot revises up in 2025 and 2026. The June SEP should more fully incorporate tariffs than the March projection, likely pushing inflation and unemployment projections higher. We expect the FOMC at this juncture reveals a willingness to tolerate excess unemployment in exchange for returning inflation to target. Only when that stance of policy faces a more serious cost to remaining in place would we expect the FOMC to consider changing this basic message. The FOMC meeting preview begins on the next page.
Bonus essay: Nonfarm payroll employment, is what you see what you get? The last four employment reports have contained downward revisions to nonfarm payroll employment amounting to -219K. The current 4-month moving average of gains in NFP of 127K per month is 47K jobs lower than the initially reported gains. Think last week's estimated May increase of 139K is right? Perhaps think again…
…NFP: what you see is not what you get Take this year. The two-year Treasury bond sold off on Friday upon hearing the good news that nonfarm payroll employment expanded 139K in May. But did it?
In the table below we show the revisions to prior months reported in each of the last four employment reports, from the February report to the May report. We skip January since it includes the annual benchmark revision and thus is not comparable. In the February report, prior months were revised down cumulatively, combining the revision to December and January by, -18K. Then in the March report, the revisions to prior months totalled -48K. In the April report, revisions totalled -58K, and in May they totalled -95K. We split NSA and seasonal factor revisions to see how much of the revisions are due to sample reporting, survey responses coming in after the first closing, as opposed to revisions to the seasonal factors attributed to revised seasonal adjustment…
Covered wagon folks weigh in on tariffs, ‘flation and the FOMC …
June 13, 2025 Wells Fargo: Weekly Economic & Financial Commentary
United States: Few Signs of Tariff Inflation This week was all about prices, and thus far, the expected tariff-induced inflation pickup has yet to appear in the hard data. Both consumer and producer price growth came in cooler than expected in May with only hints of tariff-related price pressures in specific categories. It is still the early innings, however, and we expect price growth to accelerate as the year progresses…
… Interest Rate Watch: June Flashlight for the FOMC Blackout Period Despite the ongoing tumult around trade policy, the near-term outlook for monetary policy is steady-as-she-goes. We expect the FOMC to leave the federal funds rate unchanged at its meeting next week and signal that monetary policy remains in a holding pattern.
… Moving along TO a few other curated links from the intertubes, which I HOPE you’ll find useful …
Reminding us — as if we need to hear this, but maybe — of Earls impact …
June 14, 2025 Apollo: Higher Oil Prices Magnifying the Ongoing Stagflation Shock
According to the Fed’s model of the US economy, a sustained $10 increase in oil prices is expected to increase inflation by 0.4% and lower GDP by 0.4%, see table below.
Tariffs also increase inflation and lower GDP growth.
Restrictions on immigration also increase wage inflation and lower employment growth.
In short, higher oil prices exacerbate the ongoing stagflation shock stemming from tariffs and immigration restrictions.
Stagflation is a problem for the FOMC when they meet next week. Higher inflation says the Fed should be hiking. Lower GDP growth says the Fed should cutting. So will the FOMC next week put more weight on the upward pressure on inflation or more weight on the coming slowdown in growth?
POSITIONS. Matter … Fed BETS being bantied ‘bout …
June 13, 2025 at 4:34 PM UTC Bloomberg: Bets Emerge That End to Powell’s Term Means More Fed Rate Cuts By Edward Bolingbroke
The prospect of a shift in US monetary policy when President Donald Trump replaces Jerome Powell at the end of his term as Federal Reserve chair in May 2026 has interest-rate traders looking for pay dirt.
That was evident this week in Secured Overnight Financing Rate futures — a principal way for traders to wager on changes in the Fed’s policy rate. The combination of high-volume selling of the March 2026 contract and buying of the June 2026 contract amounts to a bet that the central bank will cut interest rates in the interim.
Volume in the spread between the two contracts exceeded 60,000 on Thursday, the second highest on record. The highest-volume day was April 9, when Trump’s decision to pause tariffs on some trading partners spurred huge moves in US financial markets. Open interest in the contracts — products of CME Group Inc. — increased, suggesting that traders set new positions in them as opposed to liquidating existing ones.
Fed policymakers have eight scheduled meetings a year to set the target band for the federal funds rate, which SOFR conforms closely to. The last one of Powell’s current term is set for April 28-29. The next one is June 16-17.
Speculation that a successor would cut interest rates immediately is rooted in Trump’s persistent scolding of Powell for not having done so already. In April, Trump said the end of Powell’s term “cannot come fast enough.”
Since then — including last week — Trump has said he won’t fire Powell. But he’s kept up pressure on the central bank to cut rates, and said he intends to name a successor soon.
Powell’s Fed raised interest rates sharply in 2022 and 2023 in response to accelerating inflation, and cut them three times toward the end of last year, before Trump was inaugurated to a second non-consecutive term in January.
Since then, policymakers — who’ve projected cutting rates further before next year — have taken the position that the 4.25%-4.5% band remains appropriate in light of employment and inflation trends.
That’s infuriated Trump, who during his first term in 2017 nominated Powell to become Fed chair the following year.
Fed policymakers have their fourth meeting of the year next week and are expected to leave rates unchanged. They also will update their economic projections for the first time since March, when their median forecast was for two quarter-point rate cuts by year-end.
Economists surveyed by Bloomberg predict quarter-point rate cuts in September and December this year.
This next note / link from our modern day Lacy Hunt … many years ahead for Eric and listening to him will likely keep on and all on the ‘right side’ of history …
Jun 14, 2025 EPB: Cracks Are Spreading in the US Labor Market A closer look at the labor market reveals weakening demand, falling job quality, and signs of cyclical deterioration.
At first glance, the U.S. labor market appears to be strong. Unemployment is low by historical standards, jobs are being added, and the participation rate remains elevated.
But under the surface, something has changed.
Cracks are spreading, and the underlying data is telling a very different story—one that hasn’t yet made it into the headlines.
In this post, we’ll carefully walk through what’s actually happening inside the U.S. labor market…
…Let’s walk through the five key labor ratios that reveal exactly where we are in the cycle and where we might be headed next.
Prime-Age Labor Ratios For these first three ratios, we will focus on the 25-54 year old population, known as the prime-age population, as this removes the effects of an aging populace and other demographic changes.
The first important indicator is the employment rate—that’s the share of the labor force that’s employed. This is simply the inverse of the unemployment rate.
The prime age employment rate has declined sharply from its cycle peak – this means there is more unemployment but its likely not from widespread layoffs.
This metric usually starts to roll over early in the downturn, as firms begin to slow hiring. Although broad layoffs haven’t started yet, this early shift indicates that slack is quietly building.
Next is the employment-population ratio, which measures employment relative to the entire prime-age population, not just those in the labor force. This metric has also stalled and is now edging lower.
That tells us that job creation is no longer outpacing population growth. It’s a broader sign that the labor market is no longer absorbing workers at the rate it once was. Growth has plateaued—even if job losses or layoffs haven’t yet accelerated…
… read the full note for more details but I’ll take this note to heart and again, having listened / watched Ms DiMartino Booth, noting video a couple weeks back (HERE), well, there’s somethin’ happenin’ here and what it is ain’t exactly clear …
Hussman on bonds, from his latest …
June 2025 Hussman Market Comment: The Bubble – Contains the Collapse – Contains the Resurgence
…In bonds, I continue to view 10-year Treasury yields as adequate relative to our simple benchmarks that combine Treasury yields, nominal GDP growth, and core inflation.
Our actual investment discipline in bonds uses a much broader set of tools, but even this simple “adequacy” comparison has historically provided clear separation between periods when bonds tend to outperform Treasury bills, and periods when they lag. Despite uncertainties related to deficits and foreign investment, our broad view is that Treasury yields are adequate, and we’re comfortable with a constructive stance there.
Finally, Treasury yields remain slightly higher than they were say, 6 months ago, our general view on precious metals, which is informed by a much broader set of measures, remains constructive as well. A clear decline in Treasury yields, coupled with further economic weakness, would likely amplify that constructive view, as precious metals shares tend to reflect a positive return/risk profile under those conditions. For now, consider our broad view to be unfavorable toward stocks, and constructive toward bonds and precious metals. Those outlooks will change as observable, measurable conditions change…
Cameron Dawson weighing in this weekend with a look at OIL, a look back at some equity positioning data and a few words only on USTs …
… “So Try as You May, Feeble Your Attempt”: Oil Price Reaction
The below analysis about markets hinges on the path forward for oil prices. Oil, which rallied ~8% on Friday, is the key determinant if this geopolitical event is something markets will “look through”, as they most often do, or if there will be a longer-lasting impact.
We start with the most objective read on oil by using technical analysis. The chart below shows how oil has been in a distinct downtrend since mid-2022 and is now very overbought (using the relative strength index in the bottom panel).
WTI Oil Price per Barrell
Source: Bloomberg. Data as of 6-13-25
The combination of being overbought into downtrend resistance suggests that oil doesn’t deserve the benefit of the doubt to press higher from here, but we have to be on watch for signs of a brewing trend change (these would include new multi-year highs, higher lows, and strong reactions at support levels).
Watching for a trend change in oil prices is so very important because the downtrend in oil prices has been hugely beneficial to U.S. disinflation and consumer spending over the last few years…
…“And Therefore, Your Doubt’s Not an Option”: Treasury Market Sell-Off Just as an enigmatic lyric from TOOL sparks debate amongst fans (TOOL is famously known for not clarifying the meaning behind lyrics and titles in order to keep the lanes of interpretation open for fans), the move in Treasuries has sparked debate amongst market watchers as to how a rise in yields in the face of a “risk-off” event should be interpreted.
Our view is that the rise in the front end (2-Year yield) reflects the potential that higher oil prices, and thus a potential reacceleration in headline inflation, could hamper the Fed’s ability to deliver the market’s hoped-for rate cuts through the end of the year.
Our view on the rise in the long end (10 Year yield) reflects this risk of persistently stickier inflation that makes ballooning budget deficits even less palatable to long bond investors (recall our “Era of Consequence”) and reduces their perceived safety in a risk-off environment that has an inflationary component to it (read: stagflation). We think that this 10-Year yield move shows that the bond market, at least on Friday, is more concerned about inflation than it is about growth.
As we wrote recently, we still believe that bonds will provide diversification benefits in the next economic downturn, but that the data has to get much worse before it gets better in order to spark a sustained flight to safety in these assets due to lingering inflation and high deficit spending…
Brent Donnelly weighs in with his steller Friday Speedrun through mkts…
June 13, 2025 Spectra: Running up that hill The NASDAQ almost got there, then fell off
…Interest Rates
If you listen to the podcast with Macro Alf this week, you will hear some discussion of why I think the Fed will sound dovish at next week’s meeting and could be ready to cut by July.
Here’s a writeup from am/FX earlier in the week that explains my logic.
CPI came in low again, confirming evidence from State Street’s PriceStats, and it looks like tariff passthrough is minimal to zero for now. Prices of some things are going up a bit due to tariffs while prices of other things are going down due to softness in demand, cheap oil, and cooling services.
This is happy news for USD bears and carry bulls and now that we are through the bulk of the workhorse US data releases for the month of May, the bears will have to wait another month for the much-anticipated doom and gloom to appear in the real world. The impact of economic uncertainty and tariffs on real economic data has just not been big so far. The only place it’s showing up is in the sentiment data, and since equities are ripping and inflation remains low, I suppose the sentiment data might just catch back up. With the AI and quantum computing themes reborn of late, positive equity seasonality strongly in place until the end of July, and room for the market to price more aggressive Fed cuts, even from here… It’s going to be a long wait for the bears before we get the June data. And it might be fine too.
The Fed remains quite tight and if they finally decide it’s time to move, there could be plenty of justification for Fed Funds 100 points lower in 12 months. Current pricing is for three 25bp cuts by this time next year. Separately, the market will soon need to price a kink in interest rate options skew after May 2026 because the new Fed Chair is likely to be an überdove. The distribution of possible outcomes should look nonstandard after that date as some weird outcomes involving rapid, deep cuts become more possible.
Maybe this is just fanciful thinking, and the board will keep the new dove in check, but I doubt it. We are moving more and more towards central planning of the economy as rapidly rising debt forces the US government towards wave upon wave of financial repression.
If inflation is rolling over in the US and economists (and the market) have overestimated the inflationary shock from tariffs, Fed Funds are quite high. Neutral is closer to 2.5% or so, depending on how you measure it. The rumors of Scott Bessent as future Fed Chair are also intriguing. Global policy rates tend to move as a pack, and the Fed is behind its peers due to USA-specific uncertainty and higher, stickier inflation. I would attach a higher weight to upcoming Fed speeches—a dovish pivot might be on the horizon soon.
I have been mentioning how Fed policy looks tight relative to peers and if you do the simplest calculation of real policy rates using core inflation, you can see that the Fed and Riksbank stand out. The scaling of the y-axis is wide because of the megaloose policy after COVID and subsequent recalibration, so after the chart I have included a table of the current readings.
That Bank of Japan number stands out, obviously, as they have been incredibly slow and reticent to adopt an orthodox policy stance, even with rice prices exploding, a weak currency, and inflation above 3%. There is essentially nothing priced in for BOJ, BoE, Norges, or the Fed while the SNB is priced for 25bps (with a 25% chance of 50bps) while the Riksbank is 80% priced for a cut. Short EURSEK and USDSEK have been popular expressions of the short USD and long Europe trades and there is some risk that an extremely dovish Riksbank could lead to a painful selloff in SEK.
I continue to believe that next week’s FOMC meeting will sound dovish and set the table for a cut in July. The July meeting is currently only priced at 23% and I think that can go to 70% pretty quickly…
Agree or not (BMO does not — have a listen to latest weekly, “Long Days Ahead” HERE) — this is what makes markets and appreciate the sourced visuals and view, as always …
… in wake of UoMissAgain …
Sat 14 June 2025 at 6:30 am GMT Yahoo: America's deepest inflation fears are starting to fade
… Our Chart of the Week shows inflation expectations coming off the boil. Put simply, expectations for price increases are more tempered than they were a month ago, but they are still not as optimistic as they were six months ago.
But this framing — "better than feared" — is the story of what's brought the S&P 500 (^GSPC) back near all-time highs…
… 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,
History.com: Congress adopts the Stars and Stripes
June 14, 1777: During the American Revolution, the Continental Congress adopts a resolution stating that “the flag of the United States be thirteen alternate stripes red and white” and that “the Union be thirteen stars, white in a blue field, representing a new Constellation.” The national flag, which became known as the “Stars and Stripes,” was based on the “Grand Union” flag, a banner carried by the Continental Army in 1776 that also consisted of 13 red and white stripes. According to legend, Philadelphia seamstress Betsy Ross designed the new canton for the Stars and Stripes, which consisted of a circle of 13 stars and a blue background, at the request of General George Washington. Historians have been unable to conclusively prove or disprove this legend…
… but rather than reading that, enjoy …
Finally, as it may / may not be related to our national debt and so, the price of 30yr money … for future reference, here’s how to read a big number …
THAT is all for now. Enjoy whatever is left of YOUR weekend …
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