while we slept; JPOW (takes back the narrative) + TGT = ?; swaption vol; peak wage 'flation; bear market (stock)bounces;
Good morning … I was going to lead with something witty to say about TGT shares but here is an hourly view of 30yy over the course of the month of May, instead
Beware the BLOCK TRADES (more just below) are NOT just limited TO TGT shares although THEY will get the spotlight this morning, setting the tone.
It would appear that JPOW didn’t take kindly to the words of Bernanke and, well, CNBC on JPOW and his rate hikes,
If that involves moving past broadly understood levels of neutral we won’t hesitate to do that… We will go until we feel we’re at a place where we can say financial conditions are in an appropriate place, we see inflation coming down… There won’t be any hesitation about that
For more, ZH
Fed To Keep Pushing Until Inflation Comes Down: Key Takeaways From Powell's Interview
While Powell did not say anything groundbreaking, here are the key takeaways from the Fed chair's remarks at the Wall Street Journal event, courtesy of Bloomberg:
Powell made some of the most forceful and hawkish comments we’ve heard from him yet. He repeatedly said the Fed is going to get inflation back down to its 2% goal and won’t stop until there’s “clear and convincing” evidence it’s coming down.
He dismissed the notion of policy makers stopping and looking around once the fed funds rate reaches neutral, which most estimates put at 2.5% and officials have said they want to reach by the end of the year. Powell said the Fed “won’t hesitate” to hike above the neutral rate if needed.
Powell said that the natural rate of unemployment is likely closer to 5% than the current 3.6%. He’d like to see a labor market that’s more in balance, but there could be “some pain” involved in restoring price stability.
Powell said several times that there are still a lot of issues within the supply chain, which have been exacerbated by the Russian invasion of Ukraine and the lockdowns in China. Those problems continue to weigh on inflation, but the Fed can’t be concerned with where inflation is coming from, it just has to focus on bringing it down.
Two-year yields -- which Powell said were a pretty good gauge of Fed policy expectations -- hit their high of the session during the talk, and were at 2.69% as of 2:42 p.m. in New York. The S&P 500 was trading at roughly the same levels at the end of the conversation as it was prior to its start -- up 1.5%. The Nasdaq 100 was up 1.9% ...
And since your already over at ZH, ReSale Tales GROWTH SLOWS (ZH). For somewhat MORE on rates of GROWTH SLOWING, continue scrolling and see how it is we **MAY** have just moved past peak wage ‘flation.
Another more academic look at global macro scars from things like COVID and more recently, the War on Ukraine, this from the Dallas Fed
… here is a snapshot OF USTs as of 706a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
USTs are mixed and slightly flatter on 95% volumes (30d ave), the risk-squeeze on hold with a cross-asset unwind being observed overnight. JPY and USDs are outperforming while US stock futures are edging lower (ES -18pts here at 7am). The EGB underperformance and bear-flattening continues this morning with German 5s30s -3bps and the US-German 10y switch holding just above 190bps. Gilts are outperforming (10s -2bps), while the GBP is the biggest loser in major FX (-0.8%). Crude is higher (+1.1%), Copper lower (-0.9%). Block Activity: 5k FV seller at 5:22am, 5k FV seller at 5:39am, 5k FV block sale at 6:05am, a 5k FV seller at 6:20am, a 5k FV seller at 6:33am, a 5k FV seller at 6:53am and ANOTHER 5k FV seller at 6:57am. (7 block sales for 35k total contracts)
… and for some MORE of the news you can use » IGMs Press Picks for today (18 May) to help weed thru the noise (some of which can be found over here at Finviz).
Charts from 1stBOS where you’ll find most recent CoTD — USD 1mo10y Swaption Vol:
Chart of the Day: Last Tuesday, we shifted our bias in favor of a period of consolidation for global rates markets and we believe this consolidation can persist over at least the next 1-2 weeks. This should see short-term measures of rate vol fall, with 1m10yr USD Swaption Vol holding a large bearish divergence after repeatedly struggling to break the 130/31bps level. A close below 116.5bps would open up lower levels, with next support at 110bps, then 104.5bps. In addition, the peak in market-based measures of Inflation Expectations suggests investors are becoming more certain about the inflation outlook, which should also put downward pressure on rates vol in our view.
Meanwhile, from the far fetched back TO the nominal world, and in terms of short term strategery,
5s: We would turn tactically bearish again only at resistance at 2.57%, with the next resistance level then seen at 2.38%.
10s: Going forwards, we intend to stay tactically neutral, as we expect a rangebound phase over at least the next 1-2 weeks.
30s: We recently turned tactically bearish again at resistance at 2.965%, with scope for a move to support at 3.305%, where we would turn tactically neutral again. Resistance moves higher to 2.955%.
And from econOresearch babble and visual context department, this from DB
April employment chartbook: Peak wage inflation?
The 406k gain in private payrolls last month leaves the series just 500k shy of its February 2020 peak – a remarkable comeback from the depths of pandemic two years ago when nearly 20 million jobs were lost within one month. Though the unemployment rate was unchanged at 3.6%, labor force participation (LFP) surprisingly fell by two-tenths (to 62.2%). While the decline in LFP was due to a -353k drop in household employment – the first decline since the historic plunge in April 2020 – a deeper dive into the source of the drop points to a potential seasonal adjustment issue. For example, within industries, the decline was nearly equally split between education services (-150k) and retail trade (-160k), both of which could have stemmed from the shifting Easter Holiday.
In short, the labor market remains “robust” as the last FOMC statement acknowledged. However, as we recently discussed (See “Why even a softish labor market landing will be challenging”), our analysis suggests that bringing the labor market into better balance will likely require some increase in unemployment. For Fed officials hoping to avoid having to tighten policy more aggressively beyond neutral, the latest wage data may be mildly encouraging as the 3-month and 6-month annualized increases in average hourly earnings (AHEs) fell to 3.7% (from 4.8%) and 4.8% (from 5.4%), respectively. Looking ahead over the next three months, AHEs will run into some tough comparisons from last year, which should result in the year-over-year growth rate of the series declining over the next few months (barring a meaningful re-acceleration from the recent trend).
In this chartbook, we dive a little deeper into the outlook for wage inflation as there are some tentative signs of cooling – at least for one indicator (AHEs). To be sure, by a variety of metrics, the labor market remains at record tight levels. However, there are also some sentiment indicators that may signal further slowing in wage growth may be on the horizon.
Finally, these John Authers visuals of how, Bear Market Rallies Can Be a Treacherous Lure, has been making the rounds …
… Anyone timing those rallies correctly could have made a lot of money. Meanwhile, the S&P 500 had by my count 12 rallies of at least 6% as it went from top to bottom. The market was in one of these retracements for roughly half the time during that period, so there were plenty of buying opportunities. The problem was that these rallies also created a sequence of openings to buy into the market at a series of mini-tops. Cumulatively buying at the top of each bear market rally and selling at the bottom would have yielded a loss of 85.95% over the full period:
The descent during the global financial crisis was slightly quicker, but it still produced plenty of opportunities to trick you into buying. I counted eight significant countertrend rallies, including some very violent ones after panic set in with the fall of Lehman Brothers. These were all opportunities to make money for traders, but they also offered a great chance to get suckered in and lose even more money. During this drawdown, collectively selling at the bottom and buying at the top of each rally would have lost 80.25%:
When markets start to move quickly, and particularly when short-sellers try to escape their mistakes, rallies can be very aggressive. For well-connected traders who can move fast, such volatile conditions do offer great opportunities to profit. For most of us, it’s probably better to stick to our knitting — feeding money steadily into the market and taking any opportunities to buy stocks when they look well-valued for the longer term.
That is psychologically much more easily said than done. For videos offering some homely advice on how to do this in practice, try watching these by Warren Buffett’s business partner Charlie Munger, and by the famed Fidelity Investments portfolio manager George Noble. …
… THAT is all for now. Off to the day job…