while we slept (front end 'red headlines'); some monthly context (USTs -1.9% - worst in ~1yr); RBA; 'Earl
Good morning.
Here’s the news you can use » IGMs Press Picks for today (1st FEB) to help weed thru the noise (some of which can be found over here at Finviz). The list leads with NYT story detailing,
Fed Officials Make It Clear: This Time Is Different - NYT Central bankers on Monday emphasized that conditions are better than they were the last time they backed off their efforts to prop up the U.S. economy.
And as far as the past 12hrs or so,
Treasuries are higher and the curve a touch flatter as incumbent bear positioning meets locally 'oversold' conditions ahead of the BOE/ECB and NFP. DXY is lower (-0.28%) while front WTI futures are UNCHD. Asian stocks that were open were higher, EU and UK share markets are all roughly 1% higher while ES futures are showing -0.25% here at 6:45am. Our overnight US rates flows saw a Treasury bid during Asian hours (after the RBA preached 'patience' despite ending QE) met with better real$ selling in intermediates and the long-end. Late this morning the Fed buys back intermediate and long-end TIPS. Overnight US Treasury volume was ~80% of average overnight.
US News: Fed's Barkin: businesses would welcome higher rates CNBC Fed officials stress not jamming on the brakes on the economy as hikes loom BBG Even so, Fed officials also stress that it's 'different this time' NYT Could the 'whisper number' for Friday's NFP print be close to 0 now? Axios One might also be able to write the headline this way: Companies are hot to hire, teachers are quitting WSJ
Australia's RBA held rates steady and announced an end to QE: "Faster-than-expected progress has been made towards the RBA’s goals and further progress is likely..." -RBA Governor Philip Lowe WSJ
And because I no longer see ‘red headlines’ as they occur, the mere mention OF them, well, always gets me on the hook,
…Moments ago this 'red headline' hit up on Bloomberg: *GERMAN TWO-YEAR YIELD ABOVE ECB RATE FOR FIRST TIME SINCE 2015. This headline sparked the idea that it may be a good time to take a look a 2y rates across some of the world's larger bond markets/economies. So let's do that this morning as markets grapple to resolve locally 'oversold' conditions amid prevailing bear market trends...
German 2's, monthly: While just above the Depo Rate this morning, German 2y yields do sit right on top of a major, multi-year range support area as you can see. The horizontal red line that we've drawn in (-0.487) has not seen a monthly close above it since the end of 2015... Truth or Dare time, I guess?
… UST 2yrs, weekly: US 2yrs have actually been a relative global laggard during this sell-off as they haven't even filled their pandemic gap yet to recapture their pre-pandemic range low near 1.31%...
From the very same outfit yesterday came,
Month-end closes to watch.
… US2’5’s: has broken below critical support at 43 bps which is the neckline for a potential double top formation. A close below this level, if seen, would complete the double top formation and could suggest a target of sub +10 bps with intermediate support between 32-33 bps. Additionally, a close below 48 bps would complete a bearish outside month, which could suggest further inversion of the curve. A continued push downward would raise concerns as we approach the Fed meeting this March, explained in more detail in IF The Shoe FITZ: Mind The Gap.
Here I was thinking that long bonds ending the day and month near 2.10 would be exasperating!
MONTHLY RETURNS In somewhat more detail,
January 2022 Performance Review
Markets got 2022 off to a volatile start in January, with just 9 of the 38 non-currency assets in our sample ending the month in positive territory. The biggest story came from central banks and the Fed in particular, who continued to move in a much more hawkish direction and signalled they would begin to raise rates at their next meeting in March. But other themes including geopolitical tensions over Ukraine also served to dampen sentiment, sending global equities to their worst month since the pandemic began.… Which assets saw the biggest losses in January?
… Sovereign bonds: As with credit, sovereign bonds lost ground across the board, and US Treasuries (-1.9%) underperformed their European counterparts such as bunds (-1.1%) and OATs (-1.2%). Indeed, it was the worst monthly performance for US Treasuries since February 2021. BTPs (-0.6%) were a relative outperformer, thanks to easing concern over political risk given the re-appointment of President Mattarella, which has enabled the Draghi government to continue in office.
In some context,
Bonds clearly not the ONLY thing struggling. And speaking of struggling, well, the struggle is real,
Changing lanes and back to something which occurred overnight — a central bank decided and so,
RBA will end QE on February 10th following “a review of the actions of other central banks, the functioning of Australia’s bond market and the progress towards the goals of full employment and inflation consistent with target” but this “does not imply a near-term increase in interest rates”.
Ok, back TO one last note from the sellside which may / may not be of interest. We’ve seen ZeroHedge note on Goldilocks,
Goldman Slashes 2022 GDP Forecast Again, Warns Of "Sharp Deceleration" In Growth"
This ZeroHedge snark derived from a note yesterday morning from king of the muppets,
One Step Back, Two Steps Forward: Q1 Growth and Omicron
… Based on our new analysis, we now expect annualized real GDP growth of +0.5% in Q1 (previously +2.0%), +3.5% in Q2 (previously +3.0%), +3.0% in Q3, +2.0% in Q4, and +2.2% in 2022 Q4/Q4 (previously +2.4%). On an annual average basis, our GDP growth forecast is now +3.2% (vs. +3.8% consensus) in 2022.… Our Updated GDP Forecasts
We have lowered our Q1 GDP forecast by 1.5pp to +0.5% (qoq)—mainly reflecting our expectation for a large negative contribution from the inventories component of GDP— and we have nudged up our Q2 forecast by ½pp to +3.5%, which will benefit from the post-Omicron rebound. We have raised Q3 slightly to +3% (from +2.75%) and left Q4 unchanged (at +2.0%), which lowers our 2022 annual average GDP forecast by 0.2pp to +3.2% (vs. +3.8% consensus). However, the annual average masks the sharp deceleration in growth from 2021 into 2022, which is better captured by the 2022 Q4/Q4 rate, which we now expect will be +2.2% (previously +2.4%).
Now they are talking ‘Earl … Texas TEA,
Oil: Prices entering political intervention territory but still too low to resolve critical tightness
■ Brent oil prices have rallied past $90/bbl (our 1Q22 forecast), driven by tight fundamentals, with steep inventory draws leaving the market with concerning low inventory levels across a range of petroleum products and regions. It is in this context that OPEC+ meets this Wednesday (February 2) to set their production plans for March, with the group so far notably quiet on their decision.
■ While we had assumed a roll-over of the monthly 0.4 mb/d quota hike, we view growing potential for a faster ramp-up at this meeting, given the pace of the recent rally and the likely pressure from importing nations (with prices above the small coordinated SPR releases last November). The producers' group may also be growing more concerned by the hawkish central bank shift that could lead to slower global growth and oil revenues later this year.
■ While we acknowledge that the potential outcome remains evenly balanced between such an accelerated response and a status quo increase, the oil market would likely respond more negatively to the former given the 33% uninterrupted rally over the past two-months. Fundamentally, our modeling would point to a $3/bbl impact if OPEC+ brought forward the April hike (worth 0.2 mb/d additional supply through Dec-22) or even less if Saudi increase output by 0.5 mb/d for three months.
■ Such an OPEC+ move would not change our bullish view, however, simply representing a shift in the risk-reward of being long oil this week. In fact, the rapid decline in Covid cases, the strength of demand so far this year and initial earnings releases of US producers, guiding production below expectation, all reinforce our conviction in the need for sharply higher prices. We further continue to see rising disruption risks as an offset to a potential faster return of Iran production.
… that’s all for now. Off to the day job…