Good morning … really not much to add here / now in the moments leading up TO this mornings JOBS REPORT. I’m not even sure there will be much to add afterwards or over the weekend BUT … I may try. For NOW, though, ZH
Initial Jobless Claims Hit 8 Month Highs, Continuing Claims Jump Ahead Of Payrolls Print
… here is a snapshot OF USTs as of 718a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasuries are modestly lower and the curve a touch flatter as markets count down to the 8:30am NFP print. DXY is higher (+0.25%) while front WTI futures are a hair lower (-0.3%) this morning. Asian stocks were mostly higher despite still-rising tensions/rhetoric over Taiwan, EU and UK share markets are sharply mixed while ES futures are little changed just after 7am. Our overnight US rates flows saw a dead quiet session during Asian hours (volumes ~60% of average) with a similarly muted session during London's AM hours. Overnight Treasury volume through 7am NY time was ~50% of average overall with only 20yrs (103%) seeing above-average turnover.… some have recently asked a really great question as it relates to today's NFP outcome: "What's better for markets- +400k or a negative print?" ZH Another interesting question we've been noodling is a related one aimed at the more hikes = sooner recession = lower rates and higher stocks set. It is this one: "Are real rates yet high enough for the Fed to achieve their inflation-fighting goals?" On this, our first attachment this morning shows the updated St. Louis Fed Financial Stress Index. This index, where a 0 reading = normal stress, hit its all-time low (lowest stress) just a few weeks ago or during the week ending July 22nd. Looking at the time series, the recent dam burst of Fed speakers warning about 'higher for longer' on their rate policy might make some sense in light of the still-percolating, and indeed historic, risk-on conditions? And just like that, here's a case-in-point from today's WSJ: WSJ Food for thought anyway...
… The set- up for Treasury 30yrs is a little different since range resistance (in a band between 2.935% and 2.82%?) is not as clearly defined as with the prior two benchmarks while trend support IS a bit clearer for bonds up near 3.067% today. Do note in the lower panel that daily momentum remains near 'overbought' levels while trying to initiate a new bear momentum signal . In that light, we remain of a mind that the grind to lower rates will continue unless/until these key(?) bull trends off the mid-June rate highs are taken out. Today's closes will hopefully offer some further clarity/resolution to all this so keep eyes peeled for Ed's Rates at the Bell publication this afternoon for the update.
… for some MORE of the news you can use (Sinema signs OFF on dem agenda, bond funds BIG INFLOWS, Home Sellers CUT PRICES as Housing Mkt COOLS, ) head over TO Finviz.
ONE, in particular, I felt compelled to point out as it is making the rounds (in the recently mentioned morning commentary),
Stocks’ Summer Rally Fueled by Drop in Bond Yields
The S&P 500’s 13% rebound since June reflects investors’ bet that inflation will easeA sharp decline in longer-term bond yields has powered a rebound in stocks, as slowing growth gives investors greater confidence that the postpandemic economy won’t be defined by significantly higher interest rates than the one that preceded it.
… “The bond market is the driver here,” said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management. “That’s definitely a big boost for the equity market.”
Fueling the surge: Bets that inflation, which has been at a 40-year-high, will fall in the future and the Federal Reserve will walk back from its aggressive pace of interest-rate increases. Mr. Ren said he has unwound a position that Treasury prices will fall and yields will rise because he thinks that the Fed will have to slash rates while the economy loses steam, potentially falling into a recession.
… Supporting the bond-market rally, asset managers recently increased bullish positions on Treasurys to the highest level since December 2019, according to Deutsche Bank data, though leveraged funds such as hedge funds increased their bearish bets. In mid-June, when the 10-year yield was around its peak, investors were expecting that the federal-funds rate would reach 4% next year. Interest-rate derivatives now show rates reaching between 3.25% and 3.5% by early next year, followed quickly by rate cuts.
There you have it … a MARKETS related answer / spin on that age old question … which came first, the stock or bond market BID (or fade) …
OR, as I’m always and forever a fan of saying, NOTHING can happen without a consequence!
As we await whatever it is the message FOR the markets from the BLSs NFP, a few items delivered into Global Wall Street’s inbox …
First is somewhat JOBS related as WFC goes over yesterday’s CLAIMS DATA
Summary
Initial jobless claims have been trending higher since last November in one of the clearest signs that labor market conditions have begun to deteriorate. However, the recent trend in continuing claims adds weight to the argument that the economy is not currently in recession. That said, the recent uptick bears some resemblance to the months that preceded prior recessions, suggesting that the start of a recession may not be far off.
This is standard two-handed EconObabble … Have cake (no recession) and (can’t afford to) eat it too (recession not far off) … for more hot off same EconObabble desk of WFC,
Trade Gap Narrows Amid Cooling Domestic Demand, Exports Strength
Summary
Slower domestic demand has begun to weigh on import growth and give way to a reversal from a sharp widening to a gradual narrowing in the U.S. trade deficit. Export growth is also higher, advancing for the fifth consecutive month in June. The United States is supplying more commodities to Europe as the Russia-Ukraine war continues.
This next one from a large German bank near / dear to my heart given the goings ons in 20yy
20Y bond's liquidity woes magnified by market volatility
From the CHARTS department, with that saying — a picture is worth a thousand words — in mind, I’ll lean on this one from CitiFX for obvious (HIGHLIGHTED) reasons,
While I do NOT — repeat NOT — agree with that SENTIMENT or concept, I DO firmly believe with the operations CONCLUSION.
… Bottom line , these pictures suggest that the Fed will continue to “fight this fight” until something breaks so the backdrop in the economy and markets may get a lot worse before it gets better.
I continue to struggle to come up with a different conclusion and so far, I have failed.
Finally, on this day back in 2011,
It was a Friday NIGHT if I’m not mistaken and we had some friends over in the back yard helping us marinate some ice cubes. Got the text and to be honest with you, was not exactly sure how / which market would react but I can say with certainty, still being so close TO the ‘GFC’, I was primed and ready for Sunday evenings cash bond market open. Which SUCKED because it was still only Friday evening …
Here’s a look at 30yy, MONTHLY with August 2011 highlighted best I can (via TradingView) nowadays
… from 4.20% down TO 3.35% — interesting that SINCE 2011, that 3.35% level has come into play (2019 and again recently) and then, a year later, we were down at an unthinkable (at the time) 2.425% … Note the bottom panel — slow stochastics (ie momentum) THEN and how we’ve crossed bullishly (ie lower yields ahead) NOW. Again…Unthinkable (again), right? 60/40s dead, no?
Meanwhile, while I may think I’m so smart, writing this daily note for NO apparent reason, here’s a look at my wife having coffee with a friend recently,
More over the weekend but… THAT is all for now. Off to the day job…
Q: What is the philosopher apprentice's favorite breakfast cereal? A: .spool sseltiurF
Moving on to matters of more consequence. No thing is NOTHING for that is not a thing. DNA bequeathed us with the Gift of Pain. Pain comes in seemingly infinite shades, but, they all ultimately short-circuit fruitless loops. Anyway, Got Milk?
As per usual I can't find anything I'm worthy of disputing in your posts. But I do take heart from the impression you are out-there, in the digital ether, struggling on my behalf. But that sounds selfish, so I rephrase, it is a comfort to think you are struggling on the behalf of all us subscribers. That's NOT NOTHING! Hark you say, what is this offhand flummery in prelude to? Just that I would make a trifling adjustment to, "I continue to struggle to come up with a different conclusion and so far, I have failed", so it reads, "I have succeed, in arriving at the same conclusion with no small struggle."
As for "marinate some ice cubes", everything in Moderation, including Moderation, but that goes without saying ... why is my head starting to hurt?