while we slept; 20yr in DEMAND; excess savings ≠ demand; seasonals, 50dMA and H&S ...
Good morning and … Top bullet from today’s IGMs Press Picks
UK inflation hits 10.1% as cost of living soars - BBC Prices are continuing to rise at their fastest rate for more than 40 years, with UK inflation passing double digits for the first time since 1982.
BOOM. 10yr GILTS are UP ~13bps (investing.com HERE for a visual) and this is clearly weighing on govies from the EZ all the way to the USA. Here, as the US wakes up to this news and the markets reflex, SOME ‘out there’ MAY consider this a CONCESSION for today’s 20yr auction.
Here’s a look at 20yy DAILY ahead of this afternoon’s liquidity event (aka AUCTION)
Kindly note the 50dMA (3.388%) rests just above where we’re currently trading. Perhaps we’ll be redrawing TLINES after today’s auction on into the weekend. For now, i’ll ask if you’ve got 20s?
And a few more words from a snippet of a BBG story regarding 20s DEMAND,
(BI) Misfit 20-Year Treasury Sees Record Auction Demand From US Funds
The 20-year Treasury bond continues to trade very cheaply on the curve despite large issuance cuts made to this sector since November 2021. That said, investor demand has certainly improved at auction, with the yield at last month's sale stopping a large 2.7 bps below the market's expectation. Domestic investment funds scooped up a record share at last July's auction (in part due to the smaller issuance). US funds have taken down 68.9% of 20-year bonds at auction in 2022, compared to 63.5% last year and 56.8% in 2020.
Overseas demand dipped in June and July. That said, foreign accounts have purchased 14.2% of these bonds this year, compared to 12% last year. Dealers took down a hefty 27% of 20-year bonds in 2020, though they have purchased only 16.0% of them in 2022 through July.
… here is a snapshot OF USTs as of 715a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasuries are cheapening led by the 7yr point, but still outperforming power-flattening EGBs (2y UK +21bps, 10y Germany +12bps) after another hawkish inflation print in the UK (10.1% YoY, core 6.2%). 5y yields are threatening the technically significant 3.01% level ahead of Retail Sales and the FOMC Minutes, in line with other global bearish ‘breakouts’ in front-end and belly rates. The RBNZ’s 50bp hike overnight to 4% and further strength in EU energy markets continue to weigh on implied-policy rates as well. Cash/futures volumes are much-improved at ~125% the 30d ave, a 2.5k TY seller at 7am amid better paying/selling reported in London, with stop-outs noted in short-sterlings outright and on curve. Desk flow has been FM steepening interest in 5s30s and 10s30s inline with the price action and outright Asian RM buying in intermediates. 20y strength continues with 10s20s30s another 1.5bp richer (5bp richer in 2 days) in what can perhaps be interpreted as expectations of a solid auction today on reduced supply. USD-crosses and most commodity markets (outside of EU power/gas) are flat/mixed, while S&P futures are showing -32pts here at 7:15am (DAX also -0.9%).
… and for some MORE of the news you can use » IGMs Press Picks for today (17 Aug) to help weed thru the noise (some of which can be found over here at Finviz).
A couple / few things from my former Global Wall Street inbox
Goldilocks:
The Growth Boost From Excess Savings Is Probably Mostly Behind Us
The saving rate fell below its pre-pandemic level in 2022H1 to 5.1% as of June, implying that households have started to draw down the excess savings accumulated during the pandemic. But the saving rate undershoot has been moderate so far, and households still have around $2.2tn in excess savings on their balance sheets. How large of a spending boost we should expect from these remaining excess savings going forward depends on which households hold them, and in what types of assets they are invested.
The good news is that nearly all excess savings remain in liquid bank deposit accounts that can be deployed quickly. The bad news is that the reports from large commercial banks suggest that the typical lower-income household with a high propensity to spend probably only has a modest saving buffer, and indications are that lower-income households are running out of excess savings and feeling increased financial pressure.
The relatively small share of excess savings held by lower-income households suggests that most of the growth impulse from excess savings is probably behind us, and we expect that the saving rate will fall only a bit further to 4½-5% in 2022H2 before normalizing back towards 7% in 2023 and 2024. However, we expect that strong household balance sheets will continue to provide a backstop for spending levels, since the combination of excess savings and rapid asset price appreciation during the pandemic effectively increased the share of households who are able to smooth consumption if hit with a negative economic shock.
And an interesting chart from THE REPORT,
Ruh roh, RelRoy … regarding the GOOD NEWS above, I’m reminded of THIS ONE from EPBMacro … Fear NOT, though as there’s MORE from the same shop,
Global Economics Analyst: Why a Recession Would Likely Be Mild
Although we do not believe the US economy was in recession in the first half of 2022, we estimate the risk that this will change over the next 12 months at about one in three. And if there is a recession, one might reasonably fear that it will be fairly deep, at least in labor market terms. After all, the US unemployment rate rose by about 2pp even in the two mildest postwar downturns, in 1960-1961 and 2001…
The report goes on to detail 3 reasons for the oncoming recession to be mild. First is a high level of job OPENINGS. Second is the feedback loop of jobs slowdown TO consumer spending going to be WEAKER (cuz, you know, inflation will slow). Third is COVID — we’re still normalizing after the hit.
ReSale TALES at 830a…Moving right along …
Here’s an interesting REPORT from LPL
While Tough For Equities, August Has Been Good For Fixed Income
… As seen in the LPL Chart of the Day, some months appear more or less favorable for core fixed income, as measured by the Bloomberg U.S. Aggregate Bond index, with August generally being the best performing month. On average, the index was up 84 basis points (0.84%) in August, which was nearly 50 basis points higher than the average monthly return of 37 basis points over all months. Moreover, since 2001, the range of monthly returns generated in August were generally positive, which means core fixed income has done a good job of offsetting some of the equity losses during an otherwise volatile month.
This one reminds ME of something noted HERE just a few days ago … SEASONALS.
From seasonals TO technicals and a chart of 10yy from a weekly macro chart pack from 1stBOS — watching 2.955% with interest,
But wait, there’s more … HERE are some other charts (from WFC) where you’ll find THIS look at 10yy from 15th Aug,
And one for our collective inner stock-jockey … in case you missed the idea that Mike Wilson of MS is still bearish,
Seasonals, eh? Even stock jockeys and LPL say they matter SO … I guess I was / remain ON TO SOMETHING … THAT is all for now. Off to the day job…