while we slept; EZ service sector growth 'grinds to a near-halt'; bond mkt warns of more pain in stocks;
Good morning … While most of the free world discussing RATES at moment is centered around idea of 10yy vs 3%, I would ask if YOU wanna bid on 2s, 5s OR 7s ahead of JHOLE?
Apparently you are not alone with that underwhelming response (desire to buy dip just here / now) in US rates yesterday with stocks cratering.
To say nothing of whatever you wanna call that trainwreck of a EZ debt market at the moment … which makes perfect sense as we learned earlier today of the EZ Flash PMI
But, hey … the good news,
… “Businesses are at least continuing to see weaker rises in their costs, in turn increasing their selling prices at a softer pace. This should help to feed through to slower consumer price inflation later in the year, although it appears that any alleviation to the inflation situation is coming too late to provide any real support to demand. The remainder of 2022 is therefore looking to be one of struggle for firms across the eurozone.”
OR, as DB recaps the PMI, “It could have been worse”
… here is a snapshot OF USTs as of 705a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasuries are sharply mixed this morning and the curve flatter with both Treasuries and Bunds sharply outperforming the UK market today (UK 5yrs +9bp to highest yield since April 2011). DXY is UNCHD while front WTI futures are higher (+1.8%). Asian stocks fell in the big markets, EU and UK share markets are mixed while ES futures are showing +0.1% here at 7am. Our overnight US rates flows saw another low-activity Asian session with better net selling noted from the front end to intermediates via real$ and fast$ names. In London's AM hours, Treasuries traded on a firm footing with Asian real$ and EU bank buying flagged in intermediates. Overnight Treasury volume was ~ average with 2's and 10's seeing the highest relative average turnover (120%).… one idea we have relates to Treasury 2yr yields which finally broke out above their local range support yesterday >3.29%. The next obvious support for 2yrs is in the ~3.45% area briefly visited, and pretty swiftly rejected, back in mid-June. Yesterday's recovery in CL1 after falling over -4% seemed to pace/support the rise in front-end yields and a further, near-term bounce in oil prices might be a helping hand in getting 2y yields back to/toward their mid-June move highs. But we'd guess that CL1 will be on a short tether while 2's have been locally 'oversold' for the past few weeks (daily momentum, lower panel ). As such, we'd expect the mid-June highs in 2yr yields to be a really solid support- especially because of the relatively limited time spent above 3.40% back in June. Indeed, by the start of July, some staring at sub-2.80% 2yrs yields might have been kicking themselves for not loading up 3.40%-someting 2's just 2 weeks earlier? Moreover, the cycle high award in a 2yr Tsy auction to date has been the 3.084% high award back in June. We're obviously well above that yield today. Bottom line: today's 2yr auction reception will be an important indication as to whether 2yr yields are indeed back at/near a major support zone; one that will/could hold through this week's events. We'll certainly weigh in on this late today.
… and for some MORE of the news you can use » IGMs Press Picks for today (23 Aug) to help weed thru the noise (some of which can be found over here at Finviz).
AND a few other items which may / may not be of interest ahead of this afternoons 2yr auction and this weeks JHOLE turn of events.
First from Chris Kimble, “Are Crude Oil Prices Creating A Double Top Price Peak?”
LETS HOPE. Speaking of HOPE, from Biz Insiders 10 things, here’s #2,
2. US stock futures edge higher early Tuesday, after major indexes closed lower Monday. Meanwhile, in the past week gasoline prices in the US have fallen below $4 a gallon, according to new data.
And while hope is NOT a strategy, ZH pointing out some of what went on YESTERDAY, “US NatGas Hits 14-Year-High, EU Benchmarks Explode Higher”
Truth be known, yesterday’s move (Stocks & Bonds Slammed As Market Reprices Rate-Hike Trajectory Ahead Of J-Hole) was as much about a Citi report suggesting UK ‘flation to hit 19% or so. The REAL question on all our minds IS
MarketWatch: UK faces threat of 19% inflation. Could that happen in the US, too?
As far as the FED and JHOLE is concerned, DB offers
Tightening continues until “completely convinced” inflation controlled
From the (1stBOS)CHARTS DEPARTMENT,
Chart of the Day: 10yr US Bond Yields moved higher last week, driven mainly by the surge higher in UK rates following the strong UK labor market and CPI data. The 10yr US Bond Yield is now above the 55-day average at 2.96%, which negates our tactical bullish bias, however it does not alter our broader view that the peak in long-end yields is likely already in place for 2022. This leaves us biased to fade short-term weakness this week over Jackson hole, with short-term supports at 3.10%, then 3.25/255%.
Worth mentioning they have gotten stopped out of bullish bias 10s, remain NEUTRAL 5s and are looking at dips (3.395%/40%) to get bullish bonds
Ultimately, all of this matters as does the move in markets which, to some degree, has a earned a seat at the table as a driver of at least some of the conversation. MarketWatch,
Bond market warns of more pain for stocks as the 10-year yield tops 3%
… According to Nicholas Colas, co-founder of DataTrek Research, stocks are plunging because the yield on the 10-year Treasury TMUBMUSD10Y, 3.015% is on track to close above 3% on Monday for the first time since June.
The 3% level has served as an important line in the sand for stocks dating all the way back to the selloff in equities that took place during the fourth quarter of 2018.
“It’s like clockwork,” Colas said in a phone interview with MarketWatch. “As yields approach 3%, markets get skittish. As they go over 3%, stocks go down.”
This pattern has played out already once this year, as both Colas and BTIG market technician Jonathan Krinsky pointed out. The S&P 500 index SPX, -2.14% reached its lowest closing level of the year on June 16, just two days after the 10-year Treasury yield touched 3.48% — its highest level in more than a decade…
And while we read / consider that the Fed MAY be watching yields rise and resulting impact on stocks, truth IS they are about as likely to be watching … the weather.
FRBSF Economic Letter: The Impact of Weather on Retail Sales
Variation in weather could cause greater disruptions to a range of economic outcomes as severe weather events become more frequent or more extreme. Analyzing daily sales at a national apparel and sporting goods brand’s stores reveals that weather effects on store sales are surprisingly persistent, even after accounting for shoppers simply changing when and where they make their purchases. Moreover, sales at stores that have more experience with adverse weather events have a lower response, suggesting that adaptation may reduce the negative impact of increasingly severe weather on sales.
In other news at least as far as what the Fed is thinking, the latest from Liberty Street,
Pass-Through of Wages and Import Prices Has Increased in the Post-COVID Period
Recent inflation readings have increased concerns that inflation may run above the Federal Reserve’s target for a longer period than anticipated. The authors examine two prominent cost-push-based explanations for high inflation: rising import prices and higher labor costs. Their results indicate that imported input prices and wages have had a significant effect on U.S. domestic prices in recent months. In addition, prices in the traded sector have become more correlated with foreign competitors’ prices.
… THAT is all for now. Off to the day job…