First-Half FUBAR: Stocks Worst In 60 Years, Bonds & Bitcoin Worst Ever
Happy Bobby Bonilla Day!! For somewhat MORE, Wiki HERE… Time for some UST technicals to get our minds OFF the fact that none of us have HIS deal. Here are 30yy vs 50dMA (3.123):
So the 50dMA (3.123)repelled the long bond as month and quarter mercifully came to a close. Stocks were up off the lows and bonds bid into month and quarters end. The bond market appears to ME to be inching closer TO overBOUGHT on a daily basis. (All is not lost, though, for the longer term at heart — monthly charts are overSOLD and with a new quarter, the Lacy Hunt update shot clock has begun! Perhaps we’ll get some insights from EPBMacro before hand!)
Rebalancing flows. Bonds acting like, well, bonds (see recession comments below). Summertime and flows more muted than earlier in the year. OR perhaps ALL price action and funDUHmentals matter NOT nearly as much as … whatever the hell this is the ECB has got cookin, Zerohedge / RTRS
But wait, it’s NOT just ZH snark. HERE from Global Wall St (and WFC)
Consumer Staying Power Running Out Yesterday's GDP revisions that lowered estimates for first quarter consumer spending was just a jab; today's May personal income and spending report was the uppercut. Real consumer spending dropped 0.4% in May and prior monthly spending figures were revised lower. At least inflation did not get materially worse; the headline PCE deflator rose modestly to 6.35%.
…Bottom Line Inflation burns and is taking a toll on the economy. The Fed is ready to raise rates even higher to bring demand in line with a supply constrained world. Expect another 75 basis point hike at the July meeting, despite what now looks like another negative quarter of growth. We are seeing growth fall due to weak trade and slowdown in consumer spending, but employment is still up 2.44 million for the year. That is not a recession, yet. We have generated more jobs in the first five months of the year than we did for any one full year of the 2010s.
Less good but and the bond market is reflecting that. Bonds being bonds. Nothing more and nothing less and doing so just as most everyone has given up on them as well as the 60/40 models.
… here is a snapshot OF USTs as of 722a:
… HEREis what another shop says be behind the overnight price action (in a morning commentary titled, “2s Handling 2 Handles”),
Overnight Flows Treasuries continued their strong showing during yesterday's US session overnight as yields fell. Overnight volumes were robust with cash trading at 127% of the 10-day moving average. 10s were the most active issue, taking a 29% marketshare while 5s took 27%. 2s and 3s combined to take 29% at 16% and 13%, respectively. 7s managed 10%, 20s 1%, and 30s 4%. Flow wise we saw light buying in the belly of the curve.
… and for some MORE of the news you can use » IGMs Press Picks for today (1 July) to help weed thru the noise (some of which can be found over here at Finviz).
Given the subset of data released and markets continued adjustments ahead of month / quarter / half-year end as everyone tidy’s positions and portfolios and readies for end of 2022, a few items from Global Wall Streets inbox which caught my attention:
in our usual month-end performance review shortly, which reads like a bit of a horror story, but for what it’s worth the S&P 500 has now seen its worst H1 total return performance in 60 years, and also in total return terms it’s fallen for two consecutive quarters for the first time since the GFC. Meanwhile 10yr Treasuries look set (with a final calculation imminent) to have recorded their worst H1 since 1788, just before George Washington became President…
… The main reason for these broad-based declines is the fact that recession risks have ramped up significantly over Q2. This has been for several reasons, but first among them is the fact that inflation has proven far more persistent than the consensus expected once again, thus necessitating a more aggressive pace of rate hikes from central banks than investors were expecting at the start of the quarter. For instance, the rate priced in by Fed funds futures for the December 2022 meeting has risen from 2.40% at the end of Q1 to 3.38% at the end of Q2. A similar pattern has been seen from other central banks, and the effects are beginning to show up in the real economy too, with US mortgage rates reaching a post-2008 high.
… Which assets saw the biggest losses in Q2 Sovereign Bonds: As with credit, sovereign bonds lost ground on both sides of the Atlantic, and the decline in European sovereigns (-7.4%) was the worst so far in the 21st century. Treasuries also lost further ground, and their -4.1% decline over Q2 brings their YTD losses to -9.4%.
… From a longer-term rate pricing perspective, how much the market expects for future rate cuts is in direct tension with the terminal rate pricing. Our latest forecast assumes the market will price to a 4.1% terminal rate with a subsequent 100bps of cuts. Given the comparisons of 1995 and 2019, future cuts seem correctly priced, for now, while sticky high inflation is likely to push market pricing back to a higher terminal rate …
Given the recent attention TO Burry and the Bullwhip analogy (see his latest HERE— perhaps we’re ‘half way’ there?), this from WFC seems funtertaining
… The GDP figures are not the only area of concern. The more forward-looking Leading Economic Index (LEI) has declined for the last three months through May, and there is a high likelihood that June will also be negative based on the drop in stock prices, a flatter yield curve, rising jobless claims, and falling consumer expectations. Historically, four consecutive monthly declines in the LEI have always foretold a recession.
Reading that makes all other sellside optimism seem a bit aspirational to me (more on why in a minute). This next ‘SIGNIFICANT’ change clearly stopped me in my tracks, as yet another of the sellsides popular kids - ZENTNER & Co put data into ‘Broader Implications’,
… After the third release for 1Q22 GDP yesterday, growth was revised down 10bp to -1.6%Q SAAR, with consumption revised lower. Incorporating revisions, we lowered our GDP tracking for 2Q22 60bp to 1.4%Q SAAR, with consumption expanding at a 2.2%Q SAAR pace. Incorporating the monthly details of the downward revisions to PCE back to January 2022, we make significant downward revisions to our 2Q22 tracking. We lower our real PCE tracking from 2.2% to 0.5% and GDP to 0.3%Q SAAR.
All told, as ‘SIGNFICANT’ this downward revision may seem, it’s likely not nearly significant enough. Sellside lagging reality as usual. ZH with latest example
According to the Atlanta Fed's GDPNow model estimate for real GDP, growth in the second quarter of 2022 has been cut to a contractionary -1.0%, down from 0.0% on June 15, down from +0.9% on June 6, down from 1.3% on June 1, and down from 1.9% on May 27.
With all the gloom and doom in mind, HERE is one from the sellside and the CHARTS Department which ultimately may ease all our pains. CitiFX
As The Sun Rises: US5YR heading lower. US5YR: Failed to maintain a monthly close above resistance 3.10% (2018 high) casting some doubt on the structural breakout that we predicted would occur if we seen a monthly close above the prior cyclical high. Price action hit a low of 3% on the day and if it can close below support at 2.99% (55-day-MA), it could signal a deeper correction lower to horizontal support at 2.66% (May 26th low). Detailed more in our note, IF The Shoe FITZ: This Could Be My Moment Of Madness.
US5YR fails to achieve monthly close above 2018 high …
* We called for a peak in US Inflation Expectations back at the start of May and the market has subsequently confirmed a top, with the fall accelerating recently as commodities fall and as investors become increasingly concerned about global growth.
* For US 10yr Breakeven Inflation Expectations, major support is seen at 237/30.5bps, which we expect to hold at first attempt.
* Downside risks to inflation expectations are building though and later on in the year, we believe the range is more likely to be resolved lower with the completion of a top.
* Inside, we also discuss the implications for nominal and real yields. Our view is that US Bond Yields are set to become a lot more mean-reverting during the 2nd half of the year, however Real Yields are likely to continue moving higher in our view.
Ultimately, lower rates are good for consumers and for equities it’s just the reason which has been made a bit clearer over the past week — RECESSION — goes to show the path TO the promise land of lower rates may be laced with a few potholes along the way. As only Sgt Phil Esterhaus of Hill St Blues could say it,
Hi Steve, thanks a lot! Appreciate your summaries. Quick q on a different note: How do you get access to sellside Reseach platforms for some reasonable px? Any aggregator system out there you know of?
Hi Steve, thanks a lot! Appreciate your summaries. Quick q on a different note: How do you get access to sellside Reseach platforms for some reasonable px? Any aggregator system out there you know of?