while we slept; deflation -- one of China's exports; 'the big test'; the fall of the empire; financial conditions ease and threaten CB 'flation fight
Good morning … EARL. Some (hopefully) good news at the pump (to continue), ZH:
Oil Plunges, Sending Energy Stocks Sharply Lower: Here's What Driving The Selloff
Earl. Texas Tea … Call me if/when we get below $85. Meanwhile, lets NOT crack the champagne open just yet …
… here is a snapshot OF USTs as of 720a via TRADINGVIEW:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasuries are mixed to slightly cheaper, flattening back on risk-on conditions in EU stock markets (DAX +0.6%) and weaker EGBs (5y BTP +8bps). Volumes remain light (~75% ave) and activity remains low-touch in nature. Spreads remain under pressure from some belly-sector receiving flows, while the long-end outperforms on further weakness in energy (CO1 -1.1%, BCOMAG -0.8%). S&P futures are -5pts here at 7:15am. The DXY continues to rise modestly (+0.3%), while AUD (-0.4%) and CNH (-0.2%) are the laggards.
… and for some MORE of the news you can use » IGMs Press Picks for today (16 Aug) to help weed thru the noise (some of which can be found over here at Finviz).
Here are a couple / few items which caught my eye … first up from fintwit, WisdomTree’s Jeff Weniger noted yesterday an interesting chart,
@JeffWeniger
Guess who's exporting deflation again.
Now comes the part of the programming where we YELL that he’s confusing / conflating causation and correlation … I’ll only say that I HOPE he’s right (knowing full well that HOPE is not a strategy).
A large German bank helps make that (counter)point,
Too early to declare victory on inflation
… Although there have been some tentative positive developments on the inflation front, progress has been less clear on correcting supply-demand imbalances in the labor market and ensuring inflation expectations remain well anchored. In fact, the latest update to our common inflation expectations index (CIE), which closely tracks the Fed's own measure, has risen to a level consistent with 2.43% core PCE, 20bps above the series' high dating back to 1999 (see Data DBrief: "CIE"ing inflation expectations take off). The potential risk of inflation expectations unanchoring, at the very least, would argue for another 50bp hike in November and supports our above-market call for a 4.1% terminal rate. Recently we also showed that, according to our shadow rate, which recently rose to 4%, the monetary policy stance has tightened at the fastest annual pace since Volcker (see DB shadow fed funds rate hits 4%). As this past week’s Fedspeak emphasized, however, Fed officials are not relying on the tightening already delivered even in the face of some tentative progress on the inflation front. Indeed, they continue to view risk management as dictating a hawkish policy response that ensures inflation is on a trajectory back towards target over time.
Now on the POSITIVE side of things … A sellside firm’s SUPPLY CHAIN INDEX update showing continued improvement,
MSSCI: Improvement continues
July MSSCI showed supply-side easing again (-13% MoM after a -20% MoM decrease in June), explained by improvement in global costs of shipping raw materials, better delivery times and backlogs in some economies, and an incipient drop in containership charter rates.The Morgan Stanley Supply Chain Index (MSSCI) keeps dropping. MSSCI continued its downward trajectory in July with a substantial drop, -15% MoM in July (after -20% in June). The factors explaining the improvement are: (i) a sharp drop in the cost of transporting raw materials by sea, measured by the Baltic Exchange Dry Index (-13% MoM), (ii) an important decrease in delivery times in Korea and UK, and better backlogs in Taiwan, and (iii) an incipient drop in containership charter rates. Supply chains are still under stress, and we are still far from normal levels, but July's print confirmed the break we saw in June and we do not see signs of a slowing pace of improvement.
"MSSCI supply and demand" also decreased reflecting both supply-side improvement and slowing demand. "MSSCI supply and demand" keeps its gradual decrease shaped by supply-side recovery but also by softer global demand. Our index uses PMI new orders and purchases to keep track of global demand-side developments, and both components have been decelerating. In particular, global PMI new orders and purchases (weighted averages across major economies) decreased 13% and 8% since Feb-22, respectively.
Here’s just ONE of the comments circulating around desks yesterday in the wake of what was a really bad NY Mfg (aka EMPIRE) report — Wells Fargo,
Fall of the Empire: NY Fed Index Posts 2nd Largest Decline on Record
The Empire Index posted its second largest decline on record in August. At a time when financial markets are coming to grips with whether the economy is currently in recession or heading into one, this is not an encouraging development for measures of industrial production—one of the four key categories watched by the NBER's dating committee to determine the starting date for a recession.
And a ZH recap of yesterday afternoon TICS data
Foreigners Sold A Record Amount Of US Stocks In The Last 12 Months, China Dumped More USTs In June
According to the latest data on Treasury International Capital flows, foreigners sold $231.5BN in US stocks in the past 12 months - the biggest trailing-twelve-month sales on record...
Meanwhile US Treasuries were bought 7 of past 8 months and 11 of past 13, even though China dumped US Treasuries for the 7th straight month - the longest stretch of selling on record - to its lowest level of holdings since June 2010...
Overall, Treasury holdings continue to trend lower as gold holdings increase...
For somewhat MORE, See Gertrude Chavez-Dreyfuss of Reuters,
Finally, from the EQUITIES and CHARTS department, and 1stBOS, comes
The big test
We have held a constructive tone on a tactical basis for US equity markets from July when we saw near-term bases complete and 63-day moving averages removed (see our Nasdaq 100 spotlight).
This now brings the S&P 500 back to the cusp of what has been our core objective for the recovery and what we view as major resistance and “key test” in the 4327/4370 zone – the key long-term falling 200-day average, 61.8% retracement of the 2022 fall and potential downtrend from January. This represents an impressive 19% rally from the June low.
Although we have seen a marked improvement in breadth measures and positioning still points to a large and extreme net short, the volume picture stays seen as poor and given the importance of the aforementioned resistances, our bias remains for 4327/4370 to cap and for a potentially important top to be set here.
At the end of the day, BAD = GOOD with both stocks and bonds BID because … Chinese and US data is SO bad it’s good, well, simply seems to be missing the point. Delaying of the inevitable doesn’t mean that the inevitable will never happen. Think back to Greenspan and ‘irrational exuberance’ (Federal Reserve remarks from December 5, 1996 HERE) … To whit, REUTERS
Loosening financial conditions threaten central bank inflation fight
… "Back in June we thought that (U.S.) financial conditions were broadly where they should be to engineer the slowdown that you need to bring activity, wage growth and price inflation back to target," said Daan Struyven, senior global economist at Goldman Sachs.
"Our best guess is that they've eased a little too much."
… THAT is all for now. Off to the day job…