while we slept; 2nd or 3rd inning; the slowdown we need helping forward inflation expectations down; USDs rate of change should be of (earnings) concern
Good morning … stock futures slide (COVID restrictions in China, earnings, twitter) and bonds are marginally better bid ahead of supply. 10yy, daily (YTD) …
Looking at yields this way suggests middle of a range with NO signal coming from momentum (slow stochastics bottom panel), at least not to these old eyes. 50dMA is 3.009%. Right. got it.
… here is a snapshot OF USTs as of 720a:
… HERE is what another shop says be behind the price action, you know,
Treasuries are modestly steeper and richer after Asia risk-markets (ex-NKY 225) struggled with China lockdown concerns. In Europe the picture is not much better (DAX futures are down -0.7%, EURUSD -0.7% to 1.011) as 5y bunds outperform -4.5bps on the day. UST volumes are rather light (~70% 10d ave) ahead of a slower economic calendar, commodity losses reversing Friday’s gains (CL -2.1%, HG -1.7%). SPX futures are -18.5pts here at 7am, while USDJPY is +0.8% to trade north of 137. Flow color was exceedingly difficult to source, given light and variable conditions, a buyer of 2.5k TUs just after 6am, light paying seen in 10y SOFR swaps.
… US news | For the Fed, Easing Too Soon Risks Repeat of Stop-and-Go 1970s (WSJ)
… 10y yields, weekly: looking back on the yield ‘topping processes' in 2013-2014 and 2018…we find a familiar pattern: wide multi-quarter ranges becoming established and entrenched, before resolving lower in choppy fashion before a more explosive rally thereafter. We may be in just the 2nd / 3rd inning of this process if past is prologue.
… and for some MORE of the news you can use » IGMs Press Picks for today (11 July) to help weed thru the noise (some of which can be found over here at Finviz).
Now, in addition TO what was noted / mentioned yesterday (sellside observations HERE), a couple more things from Global Wall Streets inbox this morning,
Goldilocks update,
Global Views: The Slowdown That We Need Is Well Underway … The process around the Fed’s 75bp hike on June 15—including a) the apparent heavy weight on a preliminary UMich inflation expectations increase that was largely revised away two weeks later, and b) the decision to signal the bigger move via the media during the blackout period—was far from ideal. The move has fueled concerns that Fed officials have become so determined to “whip inflation now” that they will end up triggering an avoidable recession. Thus, markets now project meaningful rate cuts in 2023 and the 5-year 5-year forward breakeven CPI inflation rate has fallen to 2.1%, consistent with PCE inflation of just 1.8% given the historical gap between the two measures. Our own view is less dramatic. The higher CPI and UMich numbers did clearly prompt the committee to accelerate the move to its 2¼-2½% estimate of the “neutral” funds rate, but we don’t see a major shift in the longer-term reaction function. We have therefore made no change to our terminal funds rate estimate of 3¼-3½% since the WSJ article that foreshadowed the 75bp move. However, we now expect this rate to be reached as soon as yearend, with another hike of 75bp this month, 50bp in September, and two final 25bp hikes in November and December.
Stay positive and enjoy lower prices on way to work … ?
Moving along, I mentioned YESTERDAY that MSs stock jockey in chief was included as the author of this weeks Sunday start product … ZH picks up the baton with their version of it all HERE, and finally, his week ahead note picks up on his USD concerns,
Strong Dollar Just Another Headwind for Earnings, Leaving Unfinished Business for the Bear … A very strong US dollar provides yet another headwind for earnings. Meanwhile, from a historical perspective, this bear market may only be about half way done in terms of time and perhaps price, too. Our defensive recommendation has paid off this year and now represents a momentum trade; stick with it.
UBSs Paul Donavan asks / answers:
Is "stagflation" a real threat? … "Stagflation" suggests that the normal pricing mechanism has broken down, and a continuous slowing of demand for a good or service is accompanied by a continuous increase in the price of that same good or service. That is unusual, and requires an unusual policy response. Using this definition, there is little evidence of economic “stagflation” today. When demand slows at the level of an individual good or service, the rate of inflation also slows. While vigilance is appropriate, current economic behaviour does not suggest policymakers need to deploy an exceptional policy response.
He ALSO offers another angle in a completely different note,
Chinese restrictions may restrict inflation. Chinese June consumer price inflation rose a little. There is no global signal from this. Pork prices are pushing inflation in China, and pork is a very parochial price for Chinese consumers. Producer price inflation slowed. China announced more Covid restrictions in various cities (500 people were locked into a Macau casino on Covid fears). These restrictions are not full lockdown—they will damage domestic demand (especially services), but are not likely to significantly disrupt production…
And I apologize for the duplication but … you know. Recession talk is simply EVERYWHERE
… THAT is all for now. Off to the day job…