while we slept; SHCOMP -5%; global wall street says (a couple MAJOR bond letters and a 'grisly' stock bear)
Good morning … Friday’s moves in stocks and bonds said to be somewhat a result of Nomuras expectations for 75bps rate hikes (June, July @Yahoo) and from then in the US and the Fed TO this mornings move in CHINESE SHARES where COVID situation has once again gone from bad to worse, as the week gets underway.
… Mainland Chinese stocks are sliding with the Shanghai Composite (-1.95%) and CSI (-2.39%) down, falling to its lowest level since 2020 amid the worsening Covid situation in China, particularly in the financial hub of Shanghai. Strict restrictions have begun to spread, with authorities ordering mandatory Covid tests in a district of Beijing and many buildings locked down. The Hang Seng (-2.47%) is also lagging and elsewhere, the Nikkei (-1.94%) and Kospi (-1.44%) are weak. Outside of Asia, futures contracts on the S&P 500 (-0.42%) and Nasdaq (-0.30%) are lower with 2 and 10yr US yields both around -5bps lower. Brent and WTI are both around -2.9%…
-DBs Early Morning Reid
MarketWatch HERE with updated update as the index closed down MORE THAN 5%
Now we know … Here is a snapshot OF USTs as of 710a:
… HERE is what another shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasuries are higher and the belly outperforming after lockdown fears spread to Beijing (see above), cratering Chinese share markets (SHCOMP -5.1%, CSI 300 -5%, Shenzen index -6.5%). CNH sold off hard for the 5th straight session, breaching the year ago low (6.587) earlier this morning. DXY is higher (+0.45%) while front WTI futures are notably lower (-4.4%). Asian stocks were all dragged into the red by China (Nikkei -1.9%), EU and UK share markets are all in the red too (SX5E -2.3%) while ES futures are showing -0.9% here at 6:45am. Our overnight US rates flows saw 'limited' cash flows during Asian hours with some long-end selling by fast$ names the only flow of note on a morning where 2's had rallied as much as 13bp from Friday's NY closing levels. In London hours we saw Asian real$ selling into today's risk-off move. Overnight Treasury volume looked futures-dominated with ~140% of overall cash volume seen. 2's (189%) saw the highest relative average turnover overnight among Treasury benchmarks.… We've updated the daily chart of TY1 in today's attachments where you can see the triple bullish divergence and the emerging [bullish] momentum signal in the lower panel. One of the rules of thumb for instances of confirmed divergence is that once a reversal is triggered, a complete unwind of the sell-off that preceded it is possible. If true , then there may be some risk that TY1 rebounds to/toward 123-04- the March 31st high that we fell from this month. Either way, because of the set-ups and positioning... a bear market correction/positioning rinse could surprise in its longevity and magnitude, we believe.
… and for some MORE of the news you can use » IGMs Press Picks for today (25 April) to help weed thru the noise (some of which can be found over here at Finviz).
Here are a few things from Global Wall Street’s inbox which caught my eyes
BMO: 2s10s flattener from a s/t tactical trade to more fundamental, longer-term idea
1stBOS CHARTS: turned bearish 10s @ 2.83 and bonds at 2.865% (will turn bearish 5s @ 2.845)
GS: … Foreign demand for USTs to wane, but abrupt impulse unlikely … AND did you know, A Recession is NOT Inevitable
HSBCs Steve MAJOR BOND LETTER, #19. Warp Speed
KIMBLE CHARTS: Dow Bulls Do NOT Want To See Selling Start Here …
MS: there’s value in low dollar-price (IG) bonds (via ZH) AND asks, Is Neutral Enough or Not? With many bond markets pricing restrictive central bank policy rates, some by year-end even, central bankers must confront the question of whether neutral is enough, or not. Recent weakness in equity markets might be hinting at the answer. Bond markets should consolidate recent losses. (maintain 2s10s and 2s30s flatteners).
MSs stock jockey weekly chronicles deserving of his own line-item as he becomes more right by the day (and so, more highly sought after), says, Harder to Hide as the Bear Gets Grisly. With defensive stocks now expensive and offering little absolute upside, the S&P500 appears ready to join the ongoing bear market. Defensives can still outperform but it's just a relative trade at this point. Inflation is peaking but that's not bullish, because it means margins & EPS have peaked too.
… Of course, many will argue that a fall in commodity prices will help the consumer. We don't disagree on the surface of that conclusion, but pricing has been a big reason why consumer-oriented stocks have done so well. If pricing become less secure, the margin pressure we have been expecting to show up this year may be just around the corner for such stocks even if the consumer remains active, another highly debatable assumption in our view.
The bottom line is that we can't help but think we are at an important inflection point for inflation, the mirror image of our call in April 2020 to look for higher inflation when we were at the trough of the COVID recession….
BBG: high dividend stocks > USTs
WFC offers to us all exactly what we need to help navigate the market during the FOMC speaking circuit BLACKOUT PERIOD … here is their May Flashlight for the FOMC Blackout Period — think 50bps hike in May and JUNE as well as QT announced in May and all combined,
… In our view, the first 50 bps rate hike in over 20 years and the start of balance sheet runoff shows that the Federal Reserve means business in its fight against inflation.
What say YOU?
An economic calendar from the best in the strategy biz is a LINK thru TO this calendar,
… and this from EconOday (among the best available and most useful IMO), GLOBALLY HERE and as far as US domestically (only) HERE …
In closing, as stocks and bonds appear somewhat MORE worried (economy Friday, Covid — today, if you wish), I’d urge one and all to pause and (re)read THIS from HOISINGTON.
Take a moment or two and come to grips with his straight forward process of thought, some back of the envelope math and a frame of reference only he could gin up.
While his comments may NOT be as raging bond bullish as you might expect (so, it’s different this time) they are sobering and offer a few things to keep in mind as to when or IF things will change and rates no longer offer that release valve.
What does it all mean and add up to?
… THAT is all for now. Until we learn whatever it was that happened while we slept …