Good morning … it was all energy and as ZH notes, CPI slows and REAL WAGES continue to tumble -ZH (and pretty much everyone, everywhere can’t help but think of visual posted yesterday).
For somewhat more of a topical look at how Global Wall St reacted TO the ‘huge CPI miss’, ZH HERE … and closer to my heart,
Bonds Celebrate CPI Miss With One Of The Strongest 10Y Auctions In History
What this means in as far as TODAYS 30yr AUCTION is, well, anyone’s guess. Perhaps we still need and could use / would welcome a concession with which to begin a QUEST for duration?
… here is a snapshot OF USTs as of 713a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasuries are mixed with the curve pivoting steeper around a little-changed 20-year benchmark this morning as Japan was out for Mountain Day, further crushing overnight Treasury volumes. DXY has leaked further lower (-0.17%) while front WTI futures are +0.9% (see attachments). Asian stocks were mixed but China's markets saw solid gains (see links above), EU and UK share prices are sharply mixed while ES futures are showing +0.3% here at 7am. Our overnight US rates flows were as weak as one would expect with Japan closed. Our London colleagues reported that futures led their AM session with the curve still biased to steepen after CPI (see attachments and discussion on that today). Overnight Treasury volume was ~50% of average overall but there was some relative stand-out volume seen in 7's (112%).
… and for some MORE of the news you can use » IGMs Press Picks for today (11 Aug) to help weed thru the noise (some of which can be found over here at Finviz).
In addition to that, HERE is something from Reuters (Macro Matters) which caught my eyes
Deep U.S. curve inversion hastens the recession it predicts
… According to Bank of America analysts, if the Fed's 'terminal rate' ends up being more than 4% - i.e, some 50 bps higher than current market pricing suggests - then the yield curve could invert by as much as 85 bps.
That would be the deepest inversion since the savage Volcker-triggered recession of 1981.
… banks are beginning to draw in their horns. The Fed's latest Senior Loan Officer survey shows that a "significant" net 24% of banks tightened lending standards for commercial and industrial loans in July.
The figure for big banks was even higher at 26.5%.
Moving along to the part of the programming where I cannot help but note today, just a couple items dumped into the inbox which Global Wall Street is saying/selling and which you might find funTERtaining.
UBSs Paul Donovan goes down a road very well traveled:
The US enters deflation (for some)
The Federal Reserve’s June policy errors explain the market reaction to the US’s July consumer price inflation. Fed Chair Powell (who is not an economist) elevated the importance of the volatile CPI number. Fed speakers are desperately guiding that they still intend to raise rates, but the Fed tore up forward guidance and investors have no reason to believe a word Fed officials say.
The headline CPI was 0% compared to June. However, the lived experience was actually deflation. The largest part of CPI is the fantasy owners’ equivalent rent number, which no one actually pays. Ignoring that nonsense, prices fell relative to June. Even that analysis is unreliable—inflation inequality is rising. Lower income households face rising inflation, and higher income households experience more deflation. It is all very complex. What the world needs is a well-written book explaining The Truth About Inflation.
US producer prices today do not have fantasy content, and better represent the pricing power of companies. The expectation is for energy prices to pull down the headline number, but yesterday’s CPI may give a whispered expectation for a bigger decline than consensus.
US initial jobless claims are due. Job security is a critical part of the soft-landing-versus-slump debate.
For a somewhat longer-term, broader look at the outlook, have a look at WELLS,
U.S. Economic Outlook: August 2022
While the biggest debate is whether the economy is already in recession, we do not believe broad economic activity is consistent with a downturn yet. We still expect the economy to slip into a mild recession by the beginning of next year as aggressive Fed tightening is required to tame persistently high inflation. We still expect the FOMC will opt to raise the fed funds rate 75 bps at its next policy meeting in September. But there is quite a bit of data to be released before the Fed's next action, and if we get another soft CPI reading for August, the FOMC may instead move forward with a less aggressive hike of 50 bps in September.
With yesterday’s ‘all important’ CPI PEAK in mind, John Authers reminds,
Curb Your Enthusiasm on the Good Inflation News
Core inflation remains stubborn, and the Fed cares less about headline numbers than sticky prices. They’re still moving upward.… The Atlanta Fed monitors prices that are “sticky” (which require lengthy planning to change and are hard to reduce), against flexible prices that can rise or fall swiftly with little difficulty. The early months of the inflation scare were dominated by flexible prices, for which inflation is beginning to drop a little. What matters for the Fed is whether expectations have become so dislodged that sticky prices are moving. And again, the year-on-year rate of sticky price inflation rose last month, to a new 40-year high. This is a big problem that implies a need for extreme central bank vigilance. The good news is that sticky prices didn’t inflate as much last month as they did the month before — but this is still strong evidence that as far as the Fed is concerned, the peak is not yet in:
John continues with a look at what Fed hiking is priced, in the very short run
… On balance, this doesn’t change things much, although the avoidance of yet another negative surprise means we can rule out any risk of a “shock-and-awe” move, such as a hike announced between Federal Open Market Committee meetings of a 100-basis-points hike in September. As far as the fed funds futures market is concerned, as measured by Bloomberg’s own World Interest Rate Probabilities function (WIRP on the terminal), the surprisingly strong payroll number from last Friday and today’s encouraging inflation data have almost exactly canceled each other out. The chart shows the number of expected 25-basis-points hikes in September, so 2.00 equals certainty of 50 basis points, and 3.00 means certainty of 75 basis points. The fed funds market seems to be saying that the Fed could equally easily go with either, and it’s probably right about that:
Finally, John brings forward some of the current euphoria in stocks and notes,
… Chart analysts agree that the stock market is now close to the point at which it’s safe to say that June was the low. But for some, including Sam Stovall, chief investment strategist at CFRA, the coast isn’t clear until the benchmark index closes above 4,231.66 — a 50% retracement level for the current bear market. It closed Tuesday at 4,210.24, so the S&P only needs to gain less than 1% to get there. Using Fibonacci analysis, Stovall thinks reaching the midpoint would be a signal that the market is poised to make a full recovery:
“Closing above this level would imply that the bear market low has already been set,” Stovall said, “since none of the earlier 13 bear markets since 1946 enjoyed a 50% retracement of its decline only to endure a subsequent selloff that exceeded the prior low. It doesn’t mean that the prior low won’t be challenged, but it does indicate that the June 16 low will likely hold.”
… For some technical analysts, though, the level to watch is 4,177. This is where the S&P 500 marked the peak during its May to June rebound. Chartists refer to this as a “higher high,” as explained in this piece by Lu Yang and Isabelle Lee. This, they pointed out, is supposedly a signal that more sustained gains are in store.
The point of agreement appears to be that if the market moves much further upward, it will be much safer to assume that June was the bottom…
… The bullishness, however, should be met with caution. After all, there will be another jobs report and another CPI print, and a conference in Jackson Hole, before the FOMC’s next scheduled session. It may be a bit premature to definitively say equities are out of the woods, because it’s hard to see what can take them further. David Petrosinelli, senior trader at InspereX, weighs in:
“The rally in stocks has gone too far, given the that the Fed has to destroy demand across the board to get inflation under control and I think the equity market either doesn’t fully understand or believe it, or both. S&P is right around 50% retracement at ~4,200 and it seems to me that there are few catalysts to go meaningfully higher from here. Economic news isn’t great, more rate hikes which make it worse and lower savings rates and higher consumer debt all point to meaningful slow down in consumption and, ultimately, investment to me.
So, the charts suggest the bottom might well be in (barring a Yom Kippur War-level shock in the near future). But any sensible analysis of the economy suggests progress will be difficult from here.
Said a different way,
And, well, after the CPI excitement am hard-pressed to say it any better than this next one, via The Burning Platform (satire site, its just humor, folks)
… THAT is all for now. Off to the day job…
Was it really bond to happen?
-- https://www.bloomberg.com/opinion/articles/2022-08-11/personal-finance-single-bond-etfs-are-a-revolutionary-idea?srnd=opinion