ZH: Initial Jobless Claims Tumble To 8-Month Lows To End The Year Bonddad: The final jobless claims report of 2024 is good weekly, but the trend indicates substantial weakening
… unless, of course, good news is …
FRB Atlanta: Fourth-Quarter GDP Growth Estimate Decreased - January 2, 2025
…The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2024 is 2.6 percent on January 2, down from 3.1 percent on December 24…
… oh, nevermind. Claims are NOT from the ‘survey week’ for the upcoming NFP and Fed not setting policy using rear view mirror, so prolly not even worth mention.
BUT lets just say Team Rate CUTS are on to something and we’re revisiting that idea of a FI rental (10s), here may be another well defined and lower ‘ish risk vs reward setup …
30s DAILY: 4.85% (double-top) support over the past 1yr …
… with momentum crossed, pointing towards lower yields … time to rent …?
… last time this sort of setup was mid NOV when yields dropped from approx 4.65% to approx 4.35% … so a risk of ‘10bps up to / thru double top TLINE to earn something more seems, well NOT so bad …
Throw into the equation a rough start for equities ‘round the globe adding a bit of a risk OFF tone / bid for bonds …
RTRS: Global equity fund inflows drop on higher US bond yields
… Data from LSEG Lipper showed that investors added a net $4.93 billion worth of global equity funds, an 86% drop in inflows compared with about $35.1 billion worth of net purchases in the prior week.
The MSCI World index, which made a gain of over 15% in 2024, is down 1.5% this week after investors booked some profits following last year's surge in stock valuations.
The increase in bond yields also dampened interest in equities, as the U.S. 10-year Treasury yield rose to 4.641% last week, reaching its highest point since May 2…
…Safer money market funds remained popular for a second successive week as they attracted $72.99 billion, the largest weekly inflow in four weeks.
Global bond funds experienced modest inflows as investors purchased government bond funds worth a net $878 million. Loan participation funds also attracted $320 million, whereas corporate bond funds saw net outflows of $573 million…
More over the weekend but for now, here is a snapshot OF USTs as of 645a:
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
**Market Outlook:** Expect lower yields in 2025, limited reflationary trade, and lower inflationary pressures due to oil market dynamics and shelter component adjustments.
**Investment Strategy:** Favor bonds over stocks due to high starting valuations and tight credit spreads. Focus on income and diversification through individual bonds and closed-end funds.
**Risks and Opportunities:** Watch for economic slowdown in the US, potential growth scare, and geopolitical factors. AI investment and pro-growth policies could boost sentiment and corporate spending…
NEWSQUAWK: US equity futures gain, USD is a little lower ahead of US ISM Manufacturing … A relatively contained start for benchmarks, with USTs in a narrow 108-27+ to 109-01 band with the docket light until we get to the US morning when ISM Manufacturing PMI is due before the expected commencement of the vote concerning House Speaker Johnson at around 17:00GMT …
Opening Bell Daily: History says 2025 is bullish … Stocks may not add 20% again this year — but history suggests they won't turn negative … A key technical indicator hovers at levels last seen before the market peaked in 2022.
… To be sure, risks still loom, history be damned. Odds of resurgent inflation — and so fewer Fed rate cuts — are still on the table, and president-elect Trump’s tariffs remain a wild card.
Bank of America’s Sell Side Indicator, a contrarian signal that tracks strategists’ average recommended allocation to stocks, climbed in December to its highest level since 2022.
The indicator “suggests that the 20%+ annual returns we've seen over the past two years are likely behind us, but still points to a relatively healthy price return of 10% over the next 12 months,” wrote BofA strategist Tyson Dennis-Sharma in a note Thursday, adding that euphoria remains elevated among investors.
The SSI is one point away from triggering the “sell” signal, which it last touched in February 2021, less than a year before the stock market peaked.
For what it’s worth, the S&P 500 has only gained 20% for three consecutive years once before, to close out the 1990s dot-com bubble.
Markets got 2025 off to a gloomy start yesterday, with the S&P 500 (-0.22%) extending its post-Christmas losses as various headlines added to the downbeat tone. The latest decline is now the 5th consecutive move lower for the S&P, making it the longest run of declines for the index since April. But as we mentioned yesterday, the first trading day has been a very poor guide to the rest of the year in recent times, so we shouldn’t extrapolate things too far. Indeed, both of the last two years saw the S&P 500 lose ground on the first day, before going on to rise more than +20% over the year as a whole…
…Whilst there were several negative headlines yesterday, a more positive story were some upside surprises in the US data. For instance, the weekly initial jobless claims fell to their lowest since April over the week ending December 28, coming in at just 211k (vs. 221k expected). That pushed the 4-week moving average down to 223.25k, and the continuing claims for the previous week also fell to their lowest since September, at 1.844m (vs. 1.890m expected). Separately, we had the final manufacturing PMI for December, which was revised up from the flash reading to 49.4 (vs. flash 48.3). So that was all coming in on the upside.
But even with those upside data surprises, it meant investors dialled back their expectations for rate cuts from the Fed over the next few months, so that meant risk assets lost a bit of support. Moreover, given the latest moves in energy prices, investors moved to raise their near-term inflation expectations, with the US 1yr inflation swap up +4.9bps yesterday to 2.57%. And after the jobless claims numbers were out, the 2yr Treasury yield (-0.2bps) moved off its intraday low of 4.20%, paring back that decline to end the session at 4.24%. It was a similar story for the 10yr yield (-1.0bps) too, which came off its intraday low of 4.51% to close at 4.56%…
… this next (early morning)DAILY had a few words and a visual yesterday morning which caught my eye and so, sharing is caring …
…In attempting to back-fill the fundamental “why” behind a potential bullish kickoff to what has been heralded as a year that duration may be led astray by higher inflation and loose fiscal policy, we look towards a few traditional and unorthodox narrative. The simplest: weaker data - the 2-month lows (and contraction) in the BBG Eco Surprise index, largely led by a reversal of the post-election ‘sugar high’ in soft-survey data and business cycle indicators. Last week’s 3-year high in continuing claims data also underlines the risk to a sharper hiring slowdown, as Citi Economists expect (and implied market pricing does not).
That leaves the economy and market sentiment more susceptible perhaps to externalities: 1) disruptions from the polar vortex weather pattern starting next week (threatening ~70% of the country with sub-freezing temps CNN). In 2014, a similar phenomenon saw GDP shrink 2.1% in Q1 and one of the largest drops on record in ISM Services employment. 2) Round 2 of the US dockworkers’ strike, resuming on Jan 7th. As recently as Wednesday, the world’s No. 2 container carrier was urging customers to remove cargo from East and Gulf Coast ports in the US before the JAN 15 deadline for negotiations. 3) Continued economic weakness and disinflationary pressure from China, which has seen its GDP Deflator drop for three consecutive quarters, while the DEC Caixin Manfg PMI fell to 50.5 from 51.5 in November thanks to falling export orders (prompting >2-sigma losses across mainland stock indices)…
…BBG US Eco Surprise Index & Contributing Sectors: majority of the weakness a function of soft-survey data and business cycle indicators.
… being a sucker for charts, this next note from before holidays — just crossed my path — and so I had to share …
……but not too late to avoid recession The Sahm rule has accurately indicated every US recession since 1970. It triggered for the first time since the Covid recession following the July US employment report, although it has since fallen back below the threshold
… and in just one weeks time it will be NFP so why NOT a pre-cap …
We forecast 150k in December payrolls, following November's 227k rise that we estimate at 127k ex storms and strikes. We see no further fundamental weakening in December, but payrolls have slowed from earlier in the year. The UE rate increases to 4.3% and AHE rises 0.3%.
US politics intrudes into financial markets, with the US House of Representatives trying to elect a speaker today. US Speaker Johnson has been endorsed by US President-elect Trump’s influential adviser Musk, and by Trump. However, the Republicans hold a very small majority (219 to 215), and one Republican has pledged to oppose Johnson. Investors’ focus will be on what this process suggests about the ease of passing legislation in the new administration.
US President Biden is reportedly preparing to prevent Nippon Steel acquiring US Steel. Economic nationalism is often talked of in terms of trade taxes, which are relevant, but capital flows are also vulnerable. This works with both inflows and outflows: “how dare you invest overseas rather than here?”, and “how dare foreigners buy our assets?”. Neither approach promotes economic efficiency.
UK consumer credit data offers a moment of economic sanity amidst the political noise. There may be hints as to whether consumers were cautious ahead of the UK budget, or had the confidence to spend with rising real incomes.
A US business sentiment survey is due. Partisan bias gives upside risks (Republicans tend to be more emotional in surveys, so their swing from negative to positive is greater than Democrats’ swing from positive to negative).
… covered wagon folks with a note on construction spending (lack thereof) which might be what Team Rate CUT(s) looking for …
WELLS FARGO: Construction Spending Flat in November Modest Residential Gain Offsets Small Nonresidential Decline
Summary Elevated Rates Continue to Constrain Construction Total construction spending was essentially unchanged in November as a modest gain in residential outlays helped offset a small decline in nonresidential spending. The residential rise was driven by growth in single-family and home improvement outlays, reflecting home builders' ability to offer incentives to shore up demand and low supply in the existing home market. Although data center, power and highway & street outperformed, most other nonresidential segments weakened during the month. All told, total construction spending continues to moderate as elevated interest rates and tight
… And from the Global Wall Street inbox TO the WWW … a few curated links …
First up, a rough start to the year, to be sure and technically speaking ‘ish …
The S&P 500 ended 2024 on a four-day losing streak and in the process saw its biggest decline from Christmas through year end since at least 1952.
There was green on the screen this morning as markets began this first trading day of 2025, but those gains quickly evaporated by mid-day. As we type this, there are 30 minutes left before the 4 PM ET close, and major US indices are down roughly 0.25% on the day.
Intraday declines today pushed the S&P 500's price into oversold territory (>1 standard deviation below its 50-DMA) for the first time since mid-August. But while price just moved into oversold territory today, things are much more extreme to the downside underneath the surface. In our research to Premium subscribers, right now we're discussing just how oversold things are and what that means for forward return expectations.
December ended up being one of the worst months for market breadth in the last half-century; on par with months like December 2018 and October 2008.
As shown below, the percentage of stocks in the S&P 500 that are trading above their 50-day moving averages has plummeted south of 20% even though the S&P itself isn't that far below its own 50-DMA. Interestingly, the 10-day advance/decline line for the S&P doesn't look as bad as it did a couple weeks ago, which is a positive in some respects.
We think the key point here is that while it may not seem like the market is that extended to the downside, it most certainly is when looking at underlying breadth, and that means there's potential for a big move higher in the near term simply from upside mean reversion.
The closely watched Santa Claus Rally period officially wraps up tomorrow. This historically strong seven-day stretch for stocks was first discovered by Yale Hirsch back in 1972. Hirsch, creator of the Stock Trader’s Almanac, officially defined the period as the last five trading days of the year plus the first two trading days of the new year.
The Santa Claus Rally usually generates a lot of headlines due to the market’s tendency to post strong returns over this short period — or perhaps it receives more attention because it occurs during a usually slow financial news cycle. Regardless, since 1950, the S&P 500 has generated an average return of 1.3% during the Santa Claus Rally period, with positive returns occurring 79% of the time. This compares to the market’s average seven-day return and positivity rate of 0.3% and 58%, respectively. Finally, back-to-back years of negative Santa Claus Rally periods are rare, occurring only in 1993–1994 and 2015–2016.
Santa Claus Rally Returns by Year (1950-2023)
Source: LPL Research, Bloomberg 01/02/25
…What Historically Happens After a +20% Year
Summary December did not live up to its reputation of being a strong month for stocks, an important reminder that seasonality trends may represent the climate, but they do not always reflect the weather. The Federal Reserve has been the scapegoat for the selling pressure after policymakers delivered a hawkish rate cut earlier this month. However, we don’t believe they should take all the blame for the recent dip. Rates were rising well before the Federal Open Market Committee Meeting on December 18, while market breadth and momentum indicators were deviating from price action. Technical damage has been most acute on a short-term basis. The S&P 500 has dipped below its 50-day moving average but remains above its longer-term uptrend. However, we believe near-term downside risk remains elevated given the recent deterioration in market breadth and momentum, stretched bullish sentiment, and macro headwinds from higher rates and a stronger dollar.
… and from across the pond, a view that Santa apparently dropped lumps of coal in FOMC participants stockings …
NORDEA: Macro & Markets: A new year, a new phase for the Fed
Monetary policy in the US has entered a new phase where rate cuts are contingent on lower inflation or a weaker labour market. It looks like the new year might not bring either.
…Though it has been a poor guide on future policy, it is nonetheless noteworthy that the Fed's longer run view on the policy rate has been moving up above 3% for the first time since 2016.
Observing the history since the early 1960s, we have found that nominal GDP is a good starting point for the neutral nominal rate. Using a 2% potential growth rate and the 2% inflation target, we thus end up with 4% as a fair target. Periods of low investments and a high savings rate will pull the neutral rate below this level, like we saw in the years following the great financial crisis. These views were now also (finally) echoed by the Chairman as an explanation for the period of very low rates after 2008. He also said that because saving rates are back to normal and investments are on the rise, we should now expect rates to be higher than in the post-GFC period. We fully agree.
With investments back to normal after a post-GFC low, the neutral rate should return to nominal GDP, as has been the case since the 60s. 4% looks like a good long-term target, but short term, rates should be higher.
The market is currently pricing very close to our thinking of neutral, with long term rates around 4%. However, if inflation should not return to their 2% target, as several of the Fed members now fear, rates would need to be set in restrictive territory. We agree with the Fed that this is worth keeping in mind, and we still see mostly upside risks to current market pricing.
… THAT is all for now. Hope to have time for (somewhat)deeper dive over weekend … Off to the day job…
Happy new year guys, best wishes to all