while we slept (Japan BUYS); SURPRISE; some (5yy) longs stopped OUT; S&P 3200? a rule (with perfect track record) says (stk)mkt has NOT yet bottomed; 'financial bible' update
Good morning … 7yy with most turnover overnight (see just below) and so, a visual
oversold and hovering just beneath 50dMA (3.036%) — watching into weeks end.
Setting aside the stalling of ReSale Tales in July (as Core SOARS -ZH), how about that 20yr auction?!!
BMO: 20-year auction tails 2.5 bp -- surprisingly strong indirect award … Indirects were awarded 67.0% vs. an average of 61.3%.
JEFF: 20-Year Bond Auction Results: 2.7bp Tail, Worst Auction Since Treasury Before Started Trimming in October 2021 … The $15 bln 20-year bond tailed 2.7 bps as it stopped at 3.380%. With the tail, the auction produced a 3 3/8% coupon. This is the widest tail since October 2021, right before Treasury began to cut back the auction sizes…The 2.30 bid/cover ratio is the worst since October 2021 as well… Normally the WI sells off after the auctions, but the tail today and the higher coupon seems to have generated some opportunistic demand. The initial firming of the WI post-auction is encouraging, but we do not think that the rally will last. We expect shorts to remain strong at least into Jackson Hole, and the 20-year point is going to remain very weak.
We’re talking about the very same liquidity event so quite literally, the glass was either half full or half empty … Settling the tie, then goes TO … ZH,
Ugly 20Y Auction Sees Biggest Tail On Record As TSY Curve Kink Fail To Shrink
Whatever your belief system, I’m STILL watching the 20yy vs its 50dMA (3.388%) as noted yesterday morning (HERE). I’d ALSO note the long bond is right at ITS 50dMA (3.143%), too. With continued thoughts of an economic slowdown impacting perceptions of what the Feds next reality might be, we should continue to watch the components OF the yield curve along with the yield curve, itself. More (from expert techAmentalists) just below…
… here is a snapshot OF USTs as of 711a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasuries are slightly higher and the curve a hair flatter- outperforming their German peers after ECB's Schnabel (linked above) warned on de-anchoring inflation expectations and the risk of bigger hikes. DXY is higher (+0.14%) while front WTI futures are too (+1.15%). Asian stocks were mostly lower, EU and UK share markets are modestly higher while ES futures are showing little-changed here at 7am. Our overnight US rates flows saw a bid emerge during Asian hours on US-China-Taiwan tensions and a weaker than expected print in Aussie employment (see above). Flows were light however with some buying seen in the rally. Overnight Treasury volume was about average all across the curve with some standout turnover seen in 7's (140%).… Today's last attachment highlights how Japan has finally returned as a strong net buyer of foreign bonds again- flipping the 4-week MA of that flow into positive readings again for the first time since early this year...
… and for some MORE of the news you can use » IGMs Press Picks for today (18 Aug) to help weed thru the noise (some of which can be found over here at Finviz).
From the Global Wall Street inbox which I continue to run and as long as there are interesting things still coming into it, well, I feel obligated to share …
THIS first one basically details 2022 in a nutshell and single visual,
2022 has seen a series of "surprise" rate hikes across G10, where a central bank's rate increase has been larger than the median economist estimate (per Bloomberg)
SO while 2022 has seen this series of SURPRISEs, this FOMC minutes recap from UBSs Paul Donovan will likely NOT be one (more) of them
Slowing growth should slow policy
Federal Reserve minutes indicated that Fed economists see a meaningful slowdown in US economic growth in the second half of the year. With real incomes so negative, this is not a surprise. The tone of the minutes is consistent with a slower pace of tightening policy, which is also logical. Consumers may react faster to news and policy (the possibility of tweeting the US into a recession is real), requiring a measured policy response.
US initial jobless claims have been trending up lately. Job security is important to keeping consumers on the path to slowdown, not the path to slump. Today’s data is unlikely to show an alarming level, however. US existing home sales are due, giving more insight into a sector of the economy that is slowing significantly.
From the (1stBOS) CHARTS department, staying BULLISH 10yy and 30yy while having NEUTRALISED UNSUCCESSFUL BULLISHNESS 5yy
US 5yr Bond Yields are a major threat to our outlook for lower yields, as a large bearish “wedge” continuation pattern is threatening.
Outlook: 5yr US Bond Yields are testing above the 55-day average at 3.03%, having previously broken above the downtrend from June. The US 2yr Bond Yield has also broken higher above 3.265/3.305%, all of which is a major threat to our technical outlook for a short-term move lower in US Bond Yields. For the 5yr US Bond Yield itself, a close above 3.03% would suggest that the previously highlighted top has definitively been negated and instead suggest further ranging. Next support would then be seen at the 50% retracement of the June/August rally at 3.09%, before the 61.8% retracement and July high at 3.21/215%. Whilst below here, we would stay biased towards further choppy ranging, with only a weekly close above confirming a bearish “wedge” continuation pattern. Although “wedges” are fairly classic after failed “head and shoulders” patterns, the completion of this pattern is not our base case.
First resistance moves to 2.845%, below which would remove the recent upside pressure, however a move below the 2.78-2.745% lows is needed to open up a retest of the more important 2.565% low…
For another from the CHARTS department, BBG noting stocks might be overbought,
Sidestepping the debate on whether global stocks are in a bear market rally or new bull run, it seems pretty clear a period of at least modest consolidation is due. The MSCI AC World Index has climbed almost 13% from its June low and momentum indicators are looking a little extended. The global equities gauge is trading about two standard deviations from its 50-day moving average, a level which usually acts as a ceiling. Its relative strength index -- another gauge of momentum -- is also close to levels often suggesting an overbought market. Risk assets face a key catalyst next week in the Federal Reserve's Jackson Hole symposium and many strategists expect a hawkish shot across the bows from Chair Jerome Powell. His only focus is likely to be the importance of vanquishing inflation, whatever the cost. There's every chance traders will front run that expected hawkishness by lightening up their positions in both stocks and bonds before he speaks.
Wanting somewhat MORE on this concept of stocks looking overbought, see this mornings MORNING BRIEF by Yahoo as they have Katie Stockt
Making the case for a bear market rally, not a new bull run
On Tuesday, the S&P 500 kissed its 200-day moving average, a key technical level from which it promptly sunk. Stockton notes that the slope of that average is pointing lower — the opposite of what you want to see in a long-term bull market.
Stockton is eyeing the 3,815 level in the S&P 500 as a potential retest zone being discussed by market technicians. But if these lows are broken decisively — meaning stocks spend a couple weeks below this level — we could easily see materially lower prices.
"Unfortunately, the next support level is around 3,500. But the secondary support level would become 3,200 ... So with a breakdown below 3,815, that would then target about 3,200 based on next support."
That 3,200 level would be 34% down from the S&P 500 all-time high and 25% off Wednesday's close…
Oh. Ok then. Sticking with CHARTS because, you know, pictures are worth a thousand words, is this from one of the largest banks in the country … offering
One rule with a perfect track record says the market hasn’t bottomed
P/E should be 11 (it’s 20) or CPI should be 0% (it’s 8.5%)
Only 30% of our bull market signposts (things that happen before a market bottom) have been triggered vs. 80%+ in prior market bottoms, suggesting that another pullback is likely (Exhibit 3). One signpost with a perfect track record is the Rule of 20, i.e., the sum of CPI y/y + trailing P/E has been lower than 20 when the market bottomed (Exhibit 1). Outside of inflation falling to 0%, or the S&P 500 falling to 2500, an earnings surprise of 50% would be required to satisfy the Rule of 20, while consensus is forecasting an aggressive and we think unachievable 8% growth rate in 2023 already
Saving the best from the CHARTS department for last, there are some updates being offered by best techAmentalists out there and here’s just ONE of the 12 Charts Of Summer which caught MY eyes, as it incorporates firm view that 2yy ‘terminal’ rate may end up closer to 5% than 4% which brings with it some curve implications,
The 2’s 5’s curve (Our Financial Bible”
This has broken decisively below the minus 20 to minus 25 supports for the first time in 40 years.
During the last 30 year + period the only real focus for the Fed has been growth and employment to the exclusion of inflation.
That was an easy call as Core CPI ranged more or less between 1% and 3% and averaged 1.7%.
We are in a different World today.
In those periods we saw it bottom and turn because
· An inverted curve warned of economic slowness ahead
· The market anticipated (correctly) that the Fed would react to this and move towards cutting rates
· The curve steepened as a consequence
Today inflation is “the only thing”
As a consequence, the Fed will not pivot anytime soon (or if they do it will be short-lived) and this curve will invert even further as we saw in a backdrop that resonates with today in the 1970’s.
The chart below suggests that we can see inversion extend towards minus 50 bp’s and possibly even further with the next level of note the 1978 inversion at minus 70 bp’s
And finally, giving credit where credit is due, at least in theory, WFC report wrapping up yesterday’s ReSale Tales data in a way that must be making the administration happy AND, well, does have some element of common sense … at least from my point of view where I’d be quick to point out the hit to consumption from, say $5/gal,
Lower Gas Prices Free Up Cash to Spend Elsewhere in July
Summary
Retail sales were flat in July, but after adjusting for sharply lower prices of some goods, particularly gasoline, real retail sales actually rose 0.6%, the first volume gain in three months. E-commerce notched a solid gain, perhaps lifted by Prime Day. We expect the staying power of the consumer to last into August before a sharp spending retrenchment takes hold this autumn.
In closing, given the bear market rally party atmosphere defining the week so far, well, THIS one from investing.com
… THAT is all for now. Off to the day job…