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.
Data and Fedspeak combined in the week that has just passed and as markets continue to try and come to grips with, and get behind a post-DJT narrative …
… that there rally sure did fizzle and still far too early to get pessimistic — one bad week in a row does NOT a pattern make and so, well, good news this past week was def less good (or, dare i say it … bad)…
'Good news' was definitely 'bad news' this week as US macro data generally surprised positively...
… bad is good is bad aside AND with little to add TO the price action and specifically that of RATES, times like these I find it helpful to review a WEEKLY chart or two, in search of a signal …
2yy WEEKLY: TLINE 4.25% (or so) …
… but momentum become overSOLD (and so, buyable on medium term basis)
10yy WEEKLY: TLINE 4.50% which also speaks to psychologically important ‘round numbers’ …
… and, like 2s above, momentum here ALSO overSOLD, making one pause and think if 10s are buyable as well …
… these are levels of interest or a way to view a somewhat bigger picture context and trend whereas the daily battle can / will offer an extreme (aka dipORtunity) which helps you enter / exit a ‘trade’ or an investment. 10s vs 4.50% def seems like something to be watching in the short-run. BMO and DB weigh in below, on both 2s AND 10s.
Before I go ‘there’, a couple / few things and items from the day and week just passed which was a BIG one. Maybe NOT as consequential as the previous one, but still …
Bonddad: Real retail sales jump nicely, but we’re not out of the woods on consumption just yet
ZH: US Retail Sales 'Control Group' Unexpectedly Tumbled In October After Huge 'Seasonal Adjustment'
...but notably this is mainly due to seasonals, apparently. Seasonal adjustments are likely to impact the October retail sales report. The Census Bureau's projected seasonal factor (SF) for October 2024 is considerably less favorable than the October 2023 SF. Meanwhile, the October SF in the BAC card data is little changed from last year.
Source: BofA
So, given all that, what happened!?
Well, a lot!
… A real Goldilocks of a data set there - hot headline, cool core, ugly control group - take your pick, dove or hawk!
CalculatedRISK: Retail Sales Increased 0.4% in October CalculatedRISK: Industrial Production Decreased 0.3% in October
ZH: New York Businesses Love Trump, But US Manufacturing Contracted In October
The Empire State Fed Manufacturing Survey of general business conditions exploded higher in November. The headline general business conditions index shot up forty-three points to 31.2, its highest reading in nearly three years. New orders and shipments rose substantially
That is the second largest MoM jump in the survey's sentiment in history (beaten only by the massive stimmies in June 2020 of the COVID lockdowns)...
… Ok I’ll move on AND right TO the reason many / most are here … some WEEKLY NARRATIVES — SOME of THE VIEWS you might be able to use …
THIS WEEKEND, a couple / few things stood out to ME from the inbox … First up on ReSale TALES …
BARCAP: Retail sales: Consumers still flying high despite soft October control
Retail sales rose 0.4% m/m in October, propelled by a rebound in auto sales and a strengthened tally from restaurants and bars. Although the control group was unexpectedly soft, net upward revisions to prior months imply an even stronger carryover effect, positioning PCE for a solid Q4 gain.
… from the best in the biz and what looks to be a buyer of a dip (front end) …
… perhaps the most immediately germane question on the minds of market participants now that 10-year yields have touched 4.50% – what’s next, 4.25% or 4.75%?
… We find ourselves marginally leaning toward a drift back to the 4.25% level. The logic holds that the litany of uncertainties has left investors more comfortable being sidelined, awaiting further clarity and information before becoming more material buyers of duration. While the clarity offered by the decisive election results did open the door for a round of dip-buying, it only lasted for two sessions and the market quickly resumed the march toward higher yields. We’re not anticipating any grand revelations in the coming week, rather that outright yield levels are pushing to the point that the market is likely looking for a reason to rally from here. Admittedly, the negative Control Group in the October Retail Sales report might otherwise have been that trigger had September not been revised materially higher…
…Trading View …we like playing for a sightly more attractive entry point for a long position in 2s with $69 bn of fresh supply set to hit the market on November 25th. We'll look to buy a dip in 2s at the 200-day moving average of 4.40% …
… former Bear Stearns econ team where you can even sense it’s written with a British accent …
In the attached Weekly we highlight the lack of progress toward the Fed’s inflation objectives in recent inflation reports and we discuss market correlations.
… Other cuts of the CPI data also point to a lack of disinflation progress. For example, the Fed has emphasized non-housing core services inflation and, although the CPI measure does not track particularly well with the PCE measure from month-to-month, this week’s data showed core CPI services prices excluding rents up 4.3% at an annual rate thus far in 2024, which is faster than the 3.6% pace in 2023. On the breadth of rapid price gains, of the 83 components of the CPI that we can track back to 1998, 36% showed one-month annualized gains above 5% in October. This means that, in the last two months, there were more components of the CPI rising at rapid rates than either earlier in 2024 or in 2023 (October’s reading compares to an average of 33% in both the first half of 2024 and in 2023—in the three years ending December 2019 the average was 27%). In addition, the Cleveland Fed’s trimmed mean CPI measure held at 3.2% year-over-year in October (the same rate for three consecutive months) and was up 3.1% at an annual rate over the last three months, the fastest rate on this basis since April…
It appears obvious that progress toward the Fed’s inflation target has stalled out. Meanwhile, this week’s initial jobless claims data showed a four-week average of claims that was the lowest since the middle of May…
… next, a large German bank talks about rates in 2025, a record SHORT (5s) and in another note, talks of equity positions, flows and TRENDS …
…2025 Rates Outlook: Weeks where decades happen The US election resulted in a unified Republican government, which we interpret as leading to net fiscal easing, regulatory reforms, across-the-board tariffs, and tighter immigration controls. These policy shifts have significant implications for global interest rates. Considering the likely policy response in Europe and Japan, we anticipate higher long-term interest rates in the US, lower short-term rates and a steeper yield curve in Europe, and higher short-term rates in Japan. More specifically, our forecast anticipates a peak of ~4.75% for the 10-year US Treasury yield and ~2.50% for the 10-year German Bund yield in 2025. We discuss below the basis for these forecasts as well as the risks and uncertainties surrounding them.
…Speculators sold 102K contracts in FV to extend their net short positions to a record high of 1,869K contracts…
DB: Investor Positioning and Flows - Big Jump In Equity Positioning And Flows
…Back in line with the typical rally after a close election. The post-election rally had seen the S&P 500 jump to the top of the steep trend channel in place since October 2022 but has now given back some, taking it back to the pre-election high. While the S&P 500 had initially rallied harder than is usual after a close election (Post Election Moves, Nov 8 2024), Friday’s selloff has brought it back to the middle of the pack, largely in line with the typical trajectory. Historically, the S&P 500 has rallied by about 5%, on average, from election day to year-end…
Whole New World: Trump’s Attorney General nominee, Senate recess appointments, the Department of Government Efficiency, the Federal debt and a Democratic post-mortem on the election.
Our 2025 Outlook will focus on the US soft landing, AI adoption trends and implications for megacap stocks, the Trump administration’s signals on deregulation vs antitrust enforcement, moribund European growth and productivity, the Bitcoin surge, commercial real estate investing, hedge fund performance, the mirage of a nuclear renaissance in the West and other topics. In the meantime, to prepare you for some highly charged Thanksgiving gatherings, here are a few follow-up items from the election…
… As for the Department of Government Efficiency, good luck with that. I’m as interested as anyone in seeing a reduction in wasteful government spending, but let’s be clear about where they will have to look. As explained in our “Piece That Everyone Hates” series, there’s not much discretionary spending left to cut. As shown below, entitlements are an increasingly large share of total government spending, and previous budget agreements will already cut non-defense discretionary spending to the lowest share of GDP on record7 .
…Meanwhile, the Federal debt continues its inexorable march higher while at the same time, inflation is firming and inflation expectations are rising. For the first time I can remember, the 10-year Treasury is rising at a time when the Fed is easing. I don’t think that the Federal debt issue is going to reach a crisis over the next couple of years given a soft landing, continued global demand for US sovereign debt and the strength of the US dollar. But at some unknown point in the future, US debt sustainability will impact financial markets and the economy in a major way, at which point one can only hope that the Executive Branch that exists at the time is up to the challenge. We know from the history of poor Arthur Burns that a non-independent Federal Reserve can make matters a whole lot worse9 . Which brings us to the following question: will Trump announce an eventual Powell replacement sometime in early in 2025 (his term ends in 2026), and are his latest cabinet appointments any indication of how he might approach it?
… and, yet another (non committal) Dec CUT view …
ING: Decent US trends leaves December rate cut chances in the balance
After elevated inflation prints and mildly hawkish commentary from Fed Chair Powell this week, a set of decent retail sales numbers, but admittedly mixed manufacturing numbers leaves the prospect of a December Fed rate cut firmly in the balance. The jobs report will be key on 6 December and for now we are sticking with the view that a cut is more likely than not
… Bring in da noise and bring in da funk …
MS: Friday Finish – US Economics: The Noise Continues and So Does the Fed
Inflation data came in stronger than anticipated, and markets are now pricing less than one cut in the next two meetings. We think this reaction is overdone. The strength is driven by one-offs and does not reflect renewed inflationary pressures. We expect softer prints ahead.
… finally, ‘bout them ReSale TALES (infer whatever you want in as far as rate CUTS go), those in the covered wagons weigh in (and oh, yeah, holidays are a comin’ … Ho Ho NOoooooo )…
Wells Fargo: A Solid October for Retail Sales & Upward Revisions
Summary Giddy up Jingle-horse, retailers reported another better-than-expected month in October even as September's sales numbers were revised sharply higher. An otherwise lackluster year for retailers is gaining some last-minute momentum just as Holiday Sales get underway in November and December.
…Holiday Sales This is the last retail sales report before the official start to the holiday shopping season. Our definition of holiday sales includes total retail sales less sales at auto dealers, gasoline stations and restaurants in November and December. We learned today that through October those categories are up 2.8% year-to-date. We forecast holiday sales to increase 3.3% through year-end which, if realized, would be the smallest annual gain of the past five years (chart). Today's retail sales data place holiday sales growth almost perfectly on pace to reach our forecast.
There is a missing tailwind this year: sales momentum is as modest as it has been in several years. With already reported data for the first ten months of the year, we know that consumers are coming into this year’s holiday season in pretty average shape. Despite broader spending continuing at a robust clip, the retailers we include in our holiday sales measure have seen sales rise at a very slow pace. Since our forecast compares November and December sales to last year's levels, the low base so far this year makes for lower year-ago comparisons.
We expect current conditions to allow for a decent holiday sales season for retailers, but we are still likely to see the slowest pace of annual sales growth since ahead of the pandemic, and we remain cautious on the prospects for spending in the new year. We will provide updates to our holiday sales estimates as the retail sales data come in and keep you apprised on how the holiday sales season evolves.
Wells Fargo: Soft-Landing, or No Soft-Landing, That is the Question Q3 Update
Summary
In September, we wrote a five-part series of reports that introduced a new toolkit to predict the probability of soft-landing, stagflation and recessionary episodes. The toolkit also predicts the probability of a monetary policy pivot occurring in the next two quarters. In this report, we update our framework with Q3 data.
In the third quarter, the soft-landing probability increased from 40% to 42%. Meanwhile, the recession probability declined to 28% from 30%, and the stagflation probability declined to 27% from 28%. The soft-landing probability is the highest, which indicates that the chances of a soft-landing (trend-like growth) are higher during the next four quarters.
Though the growth scenario probabilities were little changed from last quarter, the aftermath of the election has created uncertainty for the economic outlook, which may create volatility for the probabilities moving forward
… 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 …
This week, we got higher CPI, PPI, and retail sales, and the incoming data continues to be strong.
Combined with the observed acceleration in average hourly earnings in recent months, the risks are rising that inflation could begin to move higher again, see charts below and our weekly chart book.
Source: BLS, Apollo Chief Economist
… AND from The Terminal.com …
Bloomberg: Souring S&P 500 Profit Outlook a Bad Sign for Stock Market Rally
A key gauge of earning-per-share changes is now negative
S&P 500’s valuation multiple is highest since April 2021
… Stocks are being “set up for a reversal,” said Gina Martin Adams, chief equity strategist at BI. “The big issue heading into 2025 is whether the Fed will be able to continue easing policy and if earnings momentum will favor laggards outside of Big Tech.”
Of course, analysts still expect the S&P 500 to deliver its second-best period of profit growth since early 2022 in the third quarter as earnings broaden beyond Big Tech, BI data show. With roughly 90% of companies in the index having already reported, S&P 500 profits are projected to climb by 8.5% through September from a year ago, double the 4.2% estimate at the start of earnings season…
…The earnings outlook for all of 2025 has barely budged even as analysts have raised third-quarter estimates. Wall Street sees S&P 500 companies earning around $274 per share next year, slightly below projections of roughly $277 a year ago, according to data compiled by BI.
“As we approach the beginning of the new year, you tend to see a bias to more realistic expectations,” said Matt Lloyd, chief investment strategist at Advisors Asset Management. “Combined with Fed comments about not seeing a clear rate-cut path, the headwinds become more realistic.”..
… on Fed Funds pricing (as if you didn’t have quite enough) …
StockCharts.com: Tech Stocks Plunge: What This Means for Investors
…The Yield Rally
The economy is still strong—retail sales data shows that consumers continue to spend, which is pushing Treasury yields higher. The 10-year US Treasury Yield Index ($TNX) closed at 4.43% (see daily chart below). TNX has been trending higher since mid-September and since the end of September has been trading above its 20-day SMA.
FIGURE 2. DAILY CHART OF THE 10-YEAR US TREASURY YIELD. Treasury yields have been on a relentless yield since September. A stronger US economy would keep yields higher.Chart source: StockChartsACP. For educational purposes.
Fed Chairman Powell and Boston Fed President Susan Collins' comments lowered the probability of a 25-basis-point interest rate cut in the December FOMC meeting. According to the CME FedWatch Tool, the probability is now 58.2%. It was close to 70% on Thursday, before Powell's speech.
The relentless yield rally may have been one reason the Tech sector sold off. Higher yields don't benefit growth stocks.
We have probably just learned today the magic number on the 10-year yield that begins to weigh on overvalued stocks. This is particularly noteworthy as long-term Treasuries have decisively broken through major support and seem to be accelerating their downward momentum in my view.
Activate to view larger image,
… VOL declining and thats good, right …
Macrobond: Charts of the Week
Trump’s win sparks market rally as China extends lead in global innovation
This week’s chart pack delves into the market and geopolitical shifts following Donald Trump’s re-election, with Bitcoin, US small caps and the dollar surging amid renewed investor confidence. Meanwhile, the global trade slowdown, or “Slowbalization,” continues as geopolitical tensions reshape supply chains. In the innovation sphere, China’s dominance in patent activity reaches new heights, emphasizing its competitive edge in the global technology race.
…VIX and MOVE indexes fall as markets stabilize post-election
What the chart shows This chart compares equity volatility (VIX index) and bond market volatility (MOVE index) following Trump’s victory, showing how volatility in both types of securities has shifted in response to the US election outcome.
Behind the data Trump’s decisive victory removed a major source of uncertainty from the stock market, resulting in a drop in the VIX index, a.k.a. the market’s "fear gauge." Last Thursday, the VIX dropped to 15.20 and has since fallen further, dipping below 15, indicating reduced risk perceptions among equity investors. The MOVE Index provides a complementary view, showing how both equity and bond market investors are adjusting their expectations in the post-election environment.
… Neutral rate = Big Foot? yep …
Yahoo: The Fed's biggest challenge has become the 'Sasquatch of the financial world'
…Kathy Jones, chief fixed income strategist at Schwab, recently joined Yahoo Finance's Stocks in Translation podcast and described the neutral rate as "the Sasquatch of the financial world."
The neutral rate is simple enough to define. It's the interest rate that neither stimulates nor slows the economy. It's the sweet spot where growth and inflation sit in balance. Too low, and the economy might overheat; too high, and growth stalls.
The problem is no one really knows precisely what level of interest rates meets this high standard.
"You model its inputs by looking at the past," said Jones. "Things like productivity might go into it." She noted that if workers can boost their productivity and increase their output, the economy can grow — critically, without inflation…
… WHY, then, do WE — or you in markets — pay attention to something designed then and built for / discussed by those up in the ivory tower ?? I’ll wait …
… and finally, in the week just passed, some news on money market mutual funds worth pausing to consider as that narrative of ‘cash on the sidelines’ apparently will continue to have more fuel …
ZH: Election Week Saw Huge Money-Market Fund Inflows, Bank Deposits Rise, Loan Volumes Shrink
Money market funds saw massive inflows for the second straight week (+$81.6BN), pushing the total assets under management to a new record high of $6.66TN...
… 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,
Safe travels!
Maybe soft data catching up to hard data as opposed to the expected opposite