while WE slept (block BUYERS); a 'long inflation fight' ahead requires 'sustained' & positive REALZ; global AGG BEAR and beige not boring
Good morning … as 10yy have broken ABOVE 2018 cheaps and are set to challenge the cheaps of June (3.48), here’s a look a touch further OUT the curve which are already challenging YTD high yields,
Momentum remains overSOLD and the market is steady TODAY … this is far from a good looking chart and I’ll be forced to redraw ‘lines in the sand’ if/when we break out ABOVE 3.50% but for now, here is a snapshot OF USTs as of 708a:
… HERE is what another shop says be behind the “Low Conviction Conditions”
… WHILE YOU SLEPT
Treasuries are modestly richer and steeper after a range-bound Tokyo session. EGBs are outperforming (5y UK -13.5bps) in some mean-reversion after yesterday’s ‘fiscal fit’, desk flows today skewed to better buying from 10y to 30y, mainly by RM. DXY and USDJPY strength is unabated however, despite some verbal intervention overnight on the part of Japan officials, who also announced boosted JGB buyback sizes. Some residual delta hedging from yesterday's heavy corporate slate also provided some negligible downward pressure on duration. Volumes are still strong, particularly in intermediates with volumes at 1.5-7x averages. TY block (all buyers) so far this morning: 10k at 115-18 at 3:30am, 10k at 115-24 at 3:48am, 5k at 4:43am, and another 4k at 5:06am. DAX futures are -0.4% and SPX futures are +0.1% here at 7am…… 30y UST yields: now retesting major horizontal and channel supports in the 3.48-3.50% zone. Daily momentum is also in extended oversold territory and px-action is testing the upper bollinger-band after yesterday’s 2-sigma move higher in yield.
… and for some MORE of the news you can use » IGMs Press Picks for today (7 Sep) to help weed thru the noise (some of which can be found over here at Finviz).
AND we’ve reached that part of the programming where I lean on a few words from Global Wall Street’s sponsors (aka, the evil sellside).
First up, a large German operation stating what I believe to be fairly obvious,
A long inflation fight requires sustained positive real rates
… For the near-term policy outlook, the Chair’s apparent baseline expectation of another 75bp rate increase in September points to risks of a larger hike than our current base case. Last Friday’s solid jobs report is unlikely to shift this debate materially, even if it did show tentative evidence of a pickup in labor supply that could eventually contribute to disinflationary pressures. The August CPI report is likely to be a more important factor for the September FOMC meeting, with further evidence of moderation likely needed for the Fed to downshift later this month. Ahead of the blackout period, this week will feature a number of Fed speakers – most importantly, Vice Chair Brainard (Wednesday), Chair Powell (Thursday), and Governor Waller (Friday) – that could refine our understanding of the Fed’s near-term reaction function, particularly how the outcome of the August CPI report will impact their expectations.
Bloomberg is reiterating what it is DB is trying to say and offers a visual,
The threat to risk assets from real yields is intensifying. Ten-year US inflation adjusted yields — seen by many as the true gauge of borrowing costs — closed at the highest since the start of 2019 on Tuesday. Trading around 0.86%, a push toward 1% looks inevitable — remember they traded at minus 1% in March. Strategists at Goldman Sachs say we are closer to levels that would materially restrict economic activity. Risk assets are under pressure again, but there's a gnawing sensation that they have more to fall. The last time real yields jumped in June, US stock valuations fell close to 15 times earnings. They were at 16.5 times Tuesday. Rising real yields put pressure on equities as their earnings prospects have to be discounted at higher rates. That's a particular problem for the likes of tech shares, especially the speculative loss-making variety, where much of their valuation is tied up in the longer-term earnings outlook. The latest surge in real yields looks like it still hasn't been fully acknowledged by the stock market.
Back TO the large German operation for some CHARTS … Jim (early morning)REID’s latest offers a
… look at how August was the worst month for European bonds in decades, why inflation isn’t going away over the medium-to-longer term, the latest on the European energy crisis, and also briefly examine the upcoming Italian election and the Chinese property sector’s troubles. As ever, it’s full of big easy-to-read figures and titles that explain our biases. Here’s the link
… First bear market in global bonds since Bloomberg Global Ag started in 1990
Global Bonds have given up over a decade of gains… although over the longer term and on a log scale this is a blip! However global inflation would have eroded much of this over the centuries…
And from Germany we go to Switzerland and THIS from Paul Donovan of UBS
Beige, not boring
The US Federal Reserve’s Beige Book is a survey, but the responses might have more authority and there is no attempt to simplify the complexity of the US economy into a single data point. Recent data has shown US job creation to be strong or almost non-existent, service sentiment is positive or negative—so there is much uncertainty. The main issue remains—will consumers use savings and borrowing in support of spending?
Chinese exports grew less than expected in August. This is unlikely to be due to supply constraints, but instead reflects slowing global demand for durable goods. China’s challenge is that uncertainties around the zero-Covid policy encourage precautionary domestic saving, so domestic consumers are unlikely to compensate for international consumers.
German industrial production data for July was stronger than expected and, in a narrative that is becoming incredibly tedious through incessant repetition, the previous month’s data was revised significantly stronger.
Bank of England Governor Bailey and several monetary policy committee members will testify to Parliament. UK Prime Minister Truss’s economic guru has suggested 7% interest rates are just what the UK economy needs. In 1806, the new UK government was dubbed “The Ministry of All the Talents.” This epitaph has not yet been applied to the new government announced yesterday.
More from the Swiss but HERE in the form of some CHARTS (sent BEFORE selloff kicked in,
Multi Asset Macro Pack: Key Market Themes for the next 1-3 months
… THAT is all for now. Off to the day job…