while WE slept: bonds nearly UNCH, 10s approach 4.50% resistance; "Long for the Fed" -DB; big LONG bets boomin' -BBG on JPM clients longest since Oct. (of 2010)!
Good morning … I’m going to jump right in with a look at 10yr yields — NOT something the Fed controls directly but rather something which can / will be influenced by any number of factors — positions (see BBG below where the very best in the biz — Bolingbroke — notes JPMs client survey showing net longs most since 2010 …
… as momentum stretching into overBOUGHT territory … all of the aforementioned client LONGS having pushed yields back down is GREAT but as always, it’s whatever happens NEXT which we’re all trying to ‘game’ …
… and so, to some ‘GOOD’ news.
Not from an economic data point of view, which is precisely GLORIOUS … OK, maybe that’s a bit aggressive but to say the data has been resilient (once you look under the hood, back OUT say, aircraft data … see below) because or despite all the crosscurrents of this very moment in history, I believe would be more than fair. Now, speaking of fair, it’s quite possibly all a very lagging indicator BUT ahead of this afternoons FOMC meeting, a couple of inputs from just yesterday which the FOMC likely to consider …
ZH: US Durable Goods Orders Tumbled In December As Boeing Bloodbath Continues
…The bottom line - who knows? Ignore the noise and all is well. But what if the noise is the signal?
ZH: Conference Board Confidence Continues To Collapse Post-Election...
… but wait,as we ignore the noise — which may be THE signal — there’s more ‘good news …
ZH: US Home Prices Surge To New Record High (Except In Tampa)
… unless, of course you are or have been trying to … you know … buy a home. Unless of course you are NOT financing it but rather, paying cash…then yer fine.
Turning now to how the day ended …
ZH: ChatCCP-Chaos Day 2: Dead-Cat Bounce, Or Is The Pain Over?
Macro data is piling up ahead of The Fed with a mixed bag today - durable goods orders tumbled (more than expected), home prices surged (more than expected), consumer confidence crumbled (according to the Conference Board?), Richmond Fed manufacturing surged (more than expected)...
… and specifically with respect to all the sum total of the data in its entirety, shape shifting the recent GDPNow …
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2024 is 3.2 percent on January 28, up from 3.0 percent on January 17. After recent releases from the US Census Bureau and the National Association of Realtors, the nowcast of fourth-quarter real gross private domestic investment growth increased from -0.9 percent to 0.1 percent.
… Interesting then, what seems to be shape shifting up here is macro SURPRISE index clearly turning LOWER (Team Rate CUT) while GPDNow remains robust?
I’m sure it’s nothing and econ is not THAT good and / or ‘bout to fall off the proverbial cliff, right?
If yer not confused, yer NOT paying attention and so I’ll quit while I’m behind … here is a snapshot OF USTs as of 618a:
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
Opening Bell Daily: S&P 493 plays catch up … Big Tech earnings may not outpace the rest of the S&P 500 much longer … Wall Street sees the S&P 493 catching up to the Magnificent Seven — and not because of DeepSeek.
RTRS Morning Bid: Tech bounces as eyes turn to 'Mag7', Fed meet & Canada cut
Finviz (for everything else I might have overlooked …)
Moving from some of the news to some of THE VIEWS you might be able to use… here’s some of what Global Wall St is sayin’ …
Don’t look now but with rates dropping an offset is house prices, rising, guessing this would add up to be net zero for affordability …
BARCAP: House prices continued to climb in November
November had continued growth in the major house price indexes. The FHFA and S&P 20-city measures grew 0.3% and 0.41% m/m, respectively. Such further gains may be contributing to pricing some potential homeowners out of the market.
Same shop with one for Team Rate Cut …
BARCAP: Consumer confidence declines in January on more pessimistic job market views
The Conference Board's index of consumer confidence declined to 104.1 in January, as the assessments of future economic conditions and the present situation grew more pessimistic. This comes alongside a 0.2 pp increase in average inflation expectations to 5.3%.
… maybe so but then, (a)Durables say … maybe NOT as there were bright spots despite weak headline … Same shop again …
December's second-consecutive weak headline for new durable goods orders (-2.2% m/m) obscures a solid report, with strong core capital goods orders and shipments overshadowing declines in the volatile nondefense aircraft category. For now, today's report nudges up our estimate of Q4 GDP growth.
This next and last one from same shop is an equity note with “Treasuries” in the title and so, you KNOW it has MY attention …
We present top takes for equity investors from Barclays' 2025 Global Macro & Inflation Conference, including US exceptionalism, Trump trade policy, and deficit risks, and highlight key concerns and consensus views among the macro investor community.
Our picks for the top 3 most consensus views among macro investors attending the conference...
US exceptionalism should sustain through 2025, fueled by strong employment and healthy private balance sheets, and despite higher-for-longer rates. This argues for US risk asset exposure despite historically high valuations and tight spreads.
Trump's trade, tax, and immigration policies will be reflationary; most expect tariffs to be more than saber-rattling, and lead to US core inflation that's at best flat Y/Y or potentially higher by YE25, a stark about-face from last year's event when most saw inflation dropping to target.
The US fiscal outlook is worsening as tax cuts widen the deficit and boost Treasury issuance; fiscal risks are anchored for now and higher yields reflect a price-sensitive marginal buyer more so than concerns over Fed credibility.
...and our takeaways for equity investors:
Consensus view on US exceptionalism could drive crowded longs in US equities, but positioning is not overly extended currently, including among systematic strategies. We think the fundamental case for US equities over RoW remains strong, however...
...reflation risk could drive up US equity reactivity to macro data, as in late 2023/early 2024. Waning demand and sticky price pressure makes us incrementally confident in our below-consensus EPS target for SPX in FY25.
Rates volatility will be a bigger risk for US equities in 2025, particularly with the nominal UST 10Y yield hovering above 4.5% and the equity/rates correlation recently flipping negative.
… an idea from Germany, longing for the Fed…
DB: Fixed Income Chart Of The Day - Long for the Fed
Tomorrow’s Fed meeting should be relatively uneventful. The FOMC is widely expected to hold rates steady and make no adjustments to QT, there won’t be an updated SEP, the forward guidance in the statement is likely to be unchanged, and Chair Powell is unlikely to comment in any substantive way on potential changes to economic policy under the new administration.
What does this set-up mean for how US rates might move?
The chart below reproduces the key finding, showing daily changes in UST yields on each of the FOMC meeting days since Fed hikes began in March 2022. Over that three-year period the 10y has fallen 18 of 23 FOMC days (~80%) for a cumulative drop of 126bp, despite having risen roughly 250bp across all days.
Our earlier piece also showed a tendency for yields to rise in the two days before the Fed meeting, which together with the day-of moves suggests a risk premium for exposure to a potentially hawkish Fed. Harvesting this premium by investing in a strategy that goes short the Bloomberg UST Index over the two days pre-FOMC and long the day-of would have realized a cumulative return of 13% (assuming cash is uninvested between meetings) vs. an overall index return over this period of -4%.
We review the performance of US 10-year Treasuries during Federal Reserve easing cycles over the past 50 years. Given the potential impact of DeepSeek, we place particular emphasis on Federal Reserve easing cycles that were preceded by an equity market correction.
Conditions that typically support UST outperformance during easing cycles are not clearly present in the current environment. Unlike the mid-1980s, term premia are expected to rise rather than decline. Furthermore, the prospect of fiscal easing while the economy remains near full employment could constrain the Fed's actions compared to the most recent easing cycles. Therefore, a significant exogenous shock appears to be the primary potential driver of positive returns for holding USTs.
Wait, what? So if yer not confused, yer not payin’ attention? What are we doing here…
No matter WHAT, SPY WINS …??
Moving along and pullin’ out the ‘ole double negative …
Wednesday features the Fed – we watch for any messaging on liquidity management. Any spillovers from the Fed meeting to the eurozone may be muted as especially the front end of the swap curve has shown little correlation with US rates recently. The back end remains more sensitive to US dynamics and thus we maintain a steepening bias from a structural perspective
Moving right along and to another fan favorite econoguy …
The Federal Reserve decides on rates—the market consensus is for unchanged rates today. US President Trump advocates for rate cuts, but that view point may be biased by their experiences as a borrower. The rate outlook is complicated. Underlying inflation pressures are modest, and keeping real interest rates stable may require rate cuts.
Government policy adds uncertainty, which is reflected in bond market agitation. The Fed has to balance whether government spending restrictions might negatively affect growth, against how much any trade taxes will increase US inflation (specifically, whether US consumers will face second round inflation effects from tariffs).
The US administration retreated from or clarified the limits of the proposed freeze on federal grants and loans. A federal court then temporarily blocked the freeze. If the freeze were allowed, the near-term economic effect would mimic the depressingly familiar effects of selective government shutdown. Longer term, investors’ focus will be on whether rule of law is observed, and whether a freeze complicates budget deals in Congress (why support a tax cut, if the quid pro quo spending might be frozen?)…
… MORE on (a)Durables and perhaps all was NOT lost, as there was some positivity looking beyond air-craft related decline …
WELLS FARGO: Hard Core: A Hidden Surge in Demand for Core Capital Goods
Summary Look past the aircraft-related decline in durable goods orders to see a rather encouraging uptick in demand for core capital goods where both orders and shipments rose more than expected in December on the heels of upward revisions.
Same shop on confidence slip slidin’ …
WELLS FARGO: Confidence Slips in January Amid Concern About Jobs, Inflation
Summary Consumer confidence has jumped higher in the wake of the 2024 election, as it did after the election in 2016. Today's reading for January puts confidence squarely in the middle of the range of where it has been for the past year and a half.
… where’s my post election bump??
Finally, same shop with Dirty Dancing reference …
WELLS FARGO: Nobody Puts ASI in the Corner...Except Tariffs A 2024 Review of the Animal Spirits
Summary
The Animal Spirits Index (ASI) had a soft close to 2024, dropping 0.44 points in December to its lowest level all year. Though the ASI remained in positive territory for all of 2024, it has softened considerably relative to the beginning of the year.
While oscillating consumer confidence and economic policy uncertainty weighed heavily on the ASI, financial markets showed remarkable strength and boosted the index throughout the year.
We suspect 2025 will present downside risk to the ASI. Though we look for the FOMC to continue its cutting cycle this year, which will likely boost the index, the potential implementation of tariffs has the scope to weigh on all components of the ASI.
…Yield Spread The spread between the yield on the 3-month Treasury bill and the 10-year Treasury note sat in negative territory starting in November 2022. In December—over two years later—the yield spread finally returned to the green (Figure 4). Investors expect a positive yield spread between a long-dated Treasury security and a short-dated one to compensate for the risk associated with locking up money for an extended period of time. When the yield of a long-term Treasury drops below the yield of a short-term Treasury, the yield curve inverts. Yield curve inversion is a famous recession predictor, as it indicates that market participants feel pessimistic about near-term economic conditions. We look for the yield curve to remain un-inverted and suspect yields at the long-end will fall somewhat as the year progresses but not to a meaningful degree due to an elevated federal funds rate and higher term premiums.
… And from the Global Wall Street inbox TO the WWW … a few curated links …
First up, whatever that was on Monday has now been nearly fully priced back out and a note from Torsten Slok worth clicking …
The DeepSeek correction in tech stocks has not changed the overall concentration problem in the S&P 500, see chart below. Investors in the S&P 500 continue to be dramatically over-exposed to the tech sector.
BOND. Positions. Lives. Matter …
BLOOMBERG: Bets on Bigger Treasuries Rally Are Booming Before Fed Decision
Open interest continues to climb in US 10-year note futures
JPMorgan survey shows clients net longs biggest in 15 years
… Traders have a lot riding on his remarks. Expectations for further easing climbed to start this week during a tech-driven rout in stocks. The risk-off vibe pushed two-year Treasury yields to the lowest in more than a month and produced a wave of wagers on Treasuries gains. JPMorgan Chase & Co.’s latest client survey released Tuesday shows the biggest net long position in US government debt in almost 15 years…
Hedging for a possible March rate cut makes sense after cooler inflation data for December and Fed Governor Christopher Waller’s comment this month that easing by mid-year is possible. The big question mark, of course, remains President Donald Trump’s tariff plans and their impact on the economy…
…In another sign that long positions are building in Treasuries, open interest in futures — or the amount of new risk held by traders — is increasing in 10-year note contracts, particularly following Monday’s bond rally. In options, a standout trade in recent sessions has also targeted a bigger bond rally. Profits on the position got a boost from Monday’s surge in haven assets.
Bonds were not ALL that has been bought. AI inspired ROUT Monday has led investors right to QQQs as they bought most since 2021 …
BLOOMBERG: Tech’s Day of Reckoning Spurs Biggest Dip-Buying Rush Since 2021
QQQ sees biggest one-day inflow in four years during 3% plunge
Triple-leveraged Nvidia and chip stock ETFs attracted billions
A punishing selloff in technology stocks on Monday spelled opportunity for dip-buyers prowling in the $11 trillion ETF arena.
As the Invesco QQQ Trust Series 1 (ticker QQQ) sank nearly 3% on Monday, spooked by Chinese startup DeepSeek’s AI progress, investors poured $4.3 billion into the tech-heavy fund — its biggest one-day haul since 2021. The same impulse drove a record $1 billion into the GraniteShares 2x Long NVDA Daily ETF (NVDL), and almost $1.3 billion into the Direxion Daily Semiconductors Bull 3x Shares (SOXL), Bloomberg data show, despite double-digit plunges in both funds.
