Good morning … Going to skip intro / view section (given how incorrect I was yesterday to suggest a short-term SALE) … I’ll continue to watch 10s in / around that 4.30% level and have a fresh look at daily, weekly and MONTHLY charts over the weekend.
ALSO going to skip a view this morning given the FT story and how I really had hoped my account wasn’t incorrect …
FT: Citigroup erroneously credited client account with $81tn in ‘near miss’ Incident comes as US bank seeks to assuage regulatory concerns over its risk management processes
… oh well, off to work but first …here is a snapshot OF USTs as of 651a:
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
NEWSQUAWK: US Market Open: ES/NQ gain ahead of US PCE, sentiment hit amid trade angst but off worst levels … Bonds bid after Trump's latest on tariffs & tech pressure, though benchmarks are off highs … USTs are bid, benefitting from the marked equity sell-off seen in the second half of Thursday’s US session which reverberated into APAC trade and the European open; driven by losses in Tech and Trump confirming that the 10% measure on China is in addition to the 10% tariff he had already announced. Action that took USTs to a 111-03+ peak in APAC trade which is a YTD high for the June contract and takes us back to the 111-08 and 111-20+ peaks from November and December respectively. Focus today is on US PCE.
Finviz (for everything else I might have overlooked …)
Moving from some of the news to some of THE VIEWS you might be able to use… here’s some of what Global Wall St is sayin’ …
First up a couple few economic data (pre and) recaps from UK
Barclays: US Economics: Initial claims hint at DOGE fallout
Initial jobless claims under regular state programs jumped 22k, to 242k, the highest since early October. Claims under federal worker programs over the prior week were little changed and near seasonal norms. We think the jump for regular programs reflects early fallout from DOGE cuts.
AND is it really NFP precap time already … yep …
Barclays: US Economics: February employment preview: DOGE still on a leash, for now
We expect the February employment report to show a 150k job gain, roughly matching the prior month's gain. We forecast a steady unemployment rate of 4.0% and see hourly earnings slowing to 0.3% m/m (4.2% y/y). DOGE federal job layoffs were too late to have a material effect on February's estimates.
… back to the rear view mirror …
Barclays: Second Q4 GDP estimate unchanged, showing consumer on a strong footing
The second estimate of Q4 GDP was unchanged at 2.3% q/q saar amid offsetting revisions to its components. Real PCE growth was unchanged, but PDFP, a gauge of domestic demand, was revised modestly lower by 0.2pp to 3.0% q/q saar amid revisions to nonresidential investment…
…Q4 PCE inflation was revised higher for both headline and core, leaving a firmer trajectory at the tail-end of 2024. Core PCE inflation was revised higher by 0.2pp, to 2.7% q/q saar for Q4, while headline was marked up by 0.1pp, to 2.4% q/q saar. That said, we are not inclined to read too much into this today, as we await the monthly pattern tomorrow. In addition, we expect revisions to PCE price data to extend back to 2020, reflecting the new seasonally adjusted CPI and PPI indices released earlier this month, which we expect will be baked-in to tomorrow's release.
… and an adorable data point …
Barclays: Durable goods orders grow on rebounding aircraft orders
New durable goods orders increased 3.1% m/m in January, driven by a strong rebound in the volatile nondefense aircraft category, while core capital goods orders showed a more modest gain. Today's report coupled with new Q4 GDP estimates keep our Q1 GDP tracker unchanged at 2.3% q/q saar.
Trump policy confusion, softer data and Tech fatigue are giving a reality check to risk assets. Europe decoupling is unlikely to persist if US growth falters and trade war escalates, as Banks/Cyclicals outperformers may see some profit-taking. But reform-oriented coalition in Germany is good news.
Buyback activity was strong in FY24, but companies are now shifting to cash conservation; repurchase activity correlates with cheaper valuations and higher returns (especially among mid-caps) and tends to boost EPS growth relative to net income; we introduce an all-cap buyback screen.
Here are a couple from THE very best in the stratEgery biz …
BMO: Jobless Claims 242k, Core-PCE revised up 0.2 pp to 2.7% Q4
Thursday was an inside day – despite attempts to extend the recent rally toward even lower yields. On Wednesday, the 10-year sector traded through the 200-day moving-average (which currently stands at 4.243%) and managed to close just above the low-yield mark. Thursday’s move saw both bullish and bearish moments, although the net price action was fairly well contained. There remain several opening gaps of note which we expect will be filled – if not ahead of the weekend, then early next week. In 10s, the gap of relevance comes in at 4.256% to 4.264%. The long bond offers a comparable bullish target at 4.509% to 4.516%, while the gap in 2s was closed on Thursday. Contributing to our near-term bullishness on Treasuries is the constructive momentum profile with weekly stochastics decidedly skewed toward lower rates. While daily momentum is arguably overbought, we suspect that the demand for duration has yet to be completely sated…
Moving along and to a couple from France. First up, putting the STAG in stagflation …
BNP More ‘stag’, less ‘flation’? | US Rates Insights
KEY MESSAGES
Treasuries and TIPS: US Rates markets suggest a shift from stagflation concerns to outright growth worries, sparked by some weak data.
Two other factors played a part in the recent growth-concern-driven rates rally: (i) US rates market priced in too much growth optimism around the election; (ii) investors see forward looking growth concerns from tariffs, and risk of weaker a fiscal impulse.
We continue to suggest 2s10s flatteners and long 10y TIPS, acknowledging that weaker growth alone is less beneficial for them than a stagflation scenario.
Money markets: We examine the extension for Treasury and repo clearing granted by the SEC – and see it as consistent with a bond vigilant administration’s attempt to support Treasuries.
Volatility: Payer skew looks elevated now relative to comparable periods, and does not fully appreciate the administration’s bond vigilance. We see an opportunity to fade the elevated payer skew, and maintain our sell 2y10y +/-100bp risk reversal (delta-hedged).
… and precapping of the NFP report will continue …
The February jobs report will be a key test of economic resilience after a raft of weak confidence and retail reports to start the year.
We look for a rise in nonfarm payroll employment of 170k and a steady jobless rate. That would likely keep the Fed in wait-and-see mode on policy given the renewed focus on inflation risks.
Households are more downbeat about job-finding prospects, which could translate to more cautious spending should anxiety persist.
Germany weigning in on US yields. Depressing, I know …
… Connected to one of the measures discussed in the piece, we’ve seen recent reporting on the idea that the administration could ask foreign official investors to step-up purchases of long-term USTs (that “ask” could be a demand in tariff negotiations). This could include non-marketable long-term bonds that could be pledged as collateral at the Fed’s FIMA repo facility, providing holders with a liquidity backstop. A related, less drastic but less impactful measure would be to push funds out of the Fed’s foreign repo pool (its overnight RRP facility for central bank customers) and into long-term USTs; the foreign pool currently sits at $388bn …
… Separately, we have also heard the idea of “YCC” (yield curve control) coming up in recent days. It isn’t clear what’s meant by this, but if it is a target or cap on long-term UST yields as conventionally understood, we see little chancefor this to happen. To be effective, YCC requires the central bank’s power to create money behind it. That is not happening under this Fed, and any future Fed willing to do it could just lower overnight rates instead. Treasury could substantially expand its buyback program, absorbing outstanding long-term debt in exchange for bills, but we would view that as a supercharged form of the debt management/WAM issuance idea discussed in our prior note. (See here for scenarios around bill issuance.)
All told, we hold to our view that the way to bring US long-term yields down is to lower growth (clearly not desired but maybe happening now through uncertainty and confidence channels), lower inflation, or lower deficits. Regulations to boost UST demand could be supportive but should mostly affect relative UST pricing (i.e., swap spreads) as opposed to spilling over broadly to US rates.
… Markets were in a stressed mood of their own yesterday, with renewed tariff threats from President Trump in addition to a sharp tech sell-off that saw the Magnificent 7 (-3.03%) post its worst day of 2025 so far as Nvidia slumped -8.48% after its earnings the previous evening. This marked a sixth consecutive decline for the Mag-7, the first time that’s happened since April last year, and it now leaves the index -13.56% beneath its December peak. In turn, the S&P 500 fell -1.59%, moving back into the red YTD and on course for its worst week since September, while the VIX closed above 20 for the first time this year (+2.03pts to 21.13).
Risk assets had already come under some pressure after President Trump confirmed that 25% tariffs on Canada and Mexico were still scheduled for this Tuesday, March 4. In a post on Truth Social, President Trump said that “Drugs are still pouring into our Country from Mexico and Canada”, and that “until it stops, or is seriously limited, the proposed TARIFFS scheduled to go into effect on MARCH FOURTH will, indeed, go into effect, as scheduled.” On top of that, he said that China would face an additional 10% tariff, and then on April 2, the reciprocal tariffs would also go into force …
… On top of the tariffs, we got some more inflationary news from the latest Q4 GDP data, as the Fed’s preferred inflation measure of PCE was revised up on the second estimate. It showed that headline PCE was now running at +2.4% in Q4, an upward revision of a tenth, whilst core PCE was revised up two-tenths to +2.7%. So it’s in a zone where it’s still lingering above target, and that’s before the imposition of any Trump tariffs. With WTI crude oil prices also moving +2.52% higher yesterday to $70.35/bbl, investors moved to price in higher inflation, with the 1yr inflation swap bouncing +5.7bps higher on the day to 2.925%. Looking forward, that inflation focus will continue today, as we’ve got the PCE numbers for January coming out, and our US economists are expecting a core PCE reading of +0.27%.
For rates, the combination of a risk-off tone and a more inflationary backdrop drove a curve steepening. Despite the rise in near-term inflation pricing, the front-end saw a modest rally as investors moved to price in 61bps on Fed cuts by December (+1.4bps on the day). This saw 2yr Treasury yields (-2.0bps) fall to a new 4-month low of 4.05%, while the 2yr real yield fell to 0.87%, its lowest since August 2022. By contrast, 10 year yields ended a run of 6 consecutive declines (+0.4bps to 4.26%). However, overnight in Asia they've rallied a sizeable -4bps for this time of day, trading at 4.22% as I type …
Always and forever trying to be be the signal NOT the noise, knowing full well, this spot on the web more the latter than the former …
President Trump's confirmation of tariffs on Canada, Mexico and China did not trigger a significant impact on markets. Similar to the threat of eurozone tariffs earlier, rates are first waiting for concrete outcomes before choosing direction. Next week's European Central Bank meeting may not reveal much about its easing plans thereafter
Moving along and to an economist from Barclays, BAML, and now here … a weekly note …
Recent events have shifted risks in the direction of a larger fiscal drag than we assume. Whether spending cuts materialize from DOGE or the budget process, they are likely to come in categories with high multipliers. On employment, don't forget about the freeze in federal hires.
Key takeaways
Recouping small-dollar overpayments is expensive and unlikely. The question is whether DOGE efforts can meaningfully reduce other spending.
The budget resolution passed by the House includes instructions for $1.5tn in spending cuts over ten years, much of which comes from spending on health care.
Announced layoffs may reduce federal employment by about 31k/month through September. The proposed hiring freeze could reduce employment by a similar amount.
From the Swiss … a statement of the obvious (but you can taste the glee in the words)…
Equity markets reacted to social media posts from US President Trump. Trump is often more coherent on social media than in off-the-cuff comments, and these remarks made clear an intention to hike taxes—US buyers will need 25% more cash to buy Canada or Mexico, and another 10% cash to buy from China. The China threat is credible, and in line with our expectations. Markets are not inclined to believe the threats to tariff goods from Canada and Mexico.
Crying “wolf” on tariffs has economic implications, even if taxes never appear. There is some evidence of consumers buying earlier out of fear of tariffs (perhaps more Democrat consumers than Republican). Firms may raise prices ahead of tariffs. Because businesses invest in an uncertain future, increasing uncertainty affects investment risks.
German January retail sales grew less than expected compared to December, but past data was revised notably higher. This is a repeating trend. Using just the initial releases, German retail sales fell over 21% in the past couple of years. After revision, that decline is less than 4%.
US personal spending data may give hints as to consumers shifting spending to accommodate tariffs. Germany and France both offer consumer price inflation figures, and France supplies fourth quarter GDP data too.
… same shop with a few words of recap and ahead of today’s ‘flation data …
UBS: Q4 GDP still 2.3%, PCE prices firmer, wage and salary income not so much
…PCE prices surprise to the upside: core in January more likely 2.6% …We will get monthly PCE prices tomorrow along with monthly spending and income data. We expect headline PCE prices rose 0.30% over the month in January and core PCE prices rose 0.26%. Before today's release our estimate of the 12-month change in core PCE prices to be released tomorrow was 2.54% (down from 2.79% in the most recent release through December). Bringing in today's surprise pushed that projected 12-month core PCE price inflation projection up to 2.58%. The headline PCE price projection through January after today's data moves up from 2.41% to 2.45% (down 10bp from the the 2.55% through December in the most recent release). See our latest US inflation monthly here.
Wages and salaries revised down again...NFP overstating gains still? Updates to Q3 wages and salaries were made in the data released today too, with the incorporation of updated data from the UI tax records. Wages and salaries are estimated to have increased $61.6 billion in the third quarter, a downward revision of $52.4 billion, which wiped out a fair amount of income growth. These new data now imply real disposable income growth of just 0.2% (saar) in Q3 versus a prior of 1.1% and the read across to Q4 was slower 2.5% (saar) pace relative to the 2.8% (saar) in the advance estimate. With the lower path for income growth, the saving rate revised lower too, now 4.1% in Q3 (from 4.3%) and 3.8% in Q4 from 4.1%.
Finally, covered wagon folks …
Wells Fargo: Durables Pop May Say More About Tariffs than Underlying Demand
Summary The pullback in equipment spending in the fourth quarter was worse than expected in revised data out this morning. In what may be a bid to get ahead of tariffs, new durable goods orders exceeded expectations with outperformance particularly evident in core capital goods orders.
… and
Wells Fargo: Trump 2.0 & Rising Restrictive Global Trade Policy
Summary Over the past 15 years, trade policies implemented by countries around the world have led to economic fragmentation and deglobalization. Tariffs come to mind as the instrument disrupting trade integration the most; however, evidence suggests changes to tariff policies may have actually supported global trade cohesion, at least since the Global Financial Crisis in 2008-2009. Regardless, Trump 2.0 trade policy proposals could flip that narrative in a significant way, leading to a more deglobalized world and trade fragmentation. But while the impact on the real economy could be severe, global financial markets seem to be more comfortable digesting tariff headlines and more harmful trade policies.
… and and …
Wells Fargo: How Will Shrinking the Federal Workforce Impact the Labor Market?
Summary
The Trump administration has made reducing the size of the federal workforce a priority since taking office. To what extent will these efforts impact the labor market in the months ahead?
Federal government employment makes up a relatively small portion of total payrolls in the United States (1.5%). Excluding the Post Office, federal employment growth has accounted for only 4K of the 168K net jobs added over the past 12 months.
Thus far, the Trump administration's efforts to shrink federal payrolls have occurred through three channels: a 90-day hiring freeze, deferred resignations and layoffs.
A hiring freeze can reduce employment as gross hiring stops but natural attrition continues. On a gross basis, the federal government hired 36K people per month over the past 12 months. But, the administration has granted exemptions to the hiring freeze for a variety of government activities, which should help limit the decline in federal payrolls from the freeze.
In late January, the administration offered federal employees the opportunity to resign while still maintaining pay and benefits through September 30, 2025. The administration reports that about 75K workers took the deferred resignation.
The administration also has laid off some workers, particularly "probationary" employees. To the best of our knowledge, there is no official source that provides a comprehensive tracking of these displacements. Our rough sense is that the decline in federal employment from layoffs is measured in the tens of thousands. We would be surprised if it were less than 10K, and we would be even more surprised if it were over 100K.
Our best guess is that between the hiring freeze and recent layoffs, total federal employment will decline by 25K-50K over the next few months. This would be in addition to the 75K or so workers who enrolled in the deferred resignation program and will roll off the federal government's payroll on September 30. There are likely to be further indirect effects to U.S. payroll employment in the private sector from businesses who contract with the federal government. These will be harder to disentangle in the data, and our initial suspicion is that this drag on job growth will be modest.
From a timing perspective, we anticipate federal payrolls will decline by about 5K-10K in the February jobs report. Larger drags are likely in the March and April data as the hiring freeze coincides with a pickup in layoffs that has started to emerge in jobless claims filings. We expect some near-term upward pressure on the unemployment rate but for the effects to be small.
There is significant uncertainty around these estimates. Some announced layoffs have been challenged in court, while others have subsequently been reversed by the Trump administration. Furthermore, these estimates are based on changes that already have been announced, but do not include that impact from future reductions in force that may be forthcoming.
On net, we see the steps taken thus far to reduce federal employment as exerting only a modest dampening effect on payrolls in the coming months, but they are consistent with our expectation for the jobs market to cool somewhat further this year.
… …
Wells Fargo: Introducing the Tariff Tracker What Can a 19th Century Bartender Teach Us About Tracking Tariffs?
Summary New tariffs, existing tariffs, new rates on existing tariffs, 30-day deferrals, new 232 investigations. It is a lot to track. Meet your new tool for monitoring the ever-changing list. As the tariffs change, we will update our list. Bookmark it, or look for the new link on our homepage.
… And from the Global Wall Street inbox TO the intertubes, a few curated links …
Since 2023, the likelihood of a recession has declined steadily. But in recent weeks, the probability of a recession over the next 12 months has ticked higher in the US, UK, and Europe, see chart below.
Recession risk on rise and bears in stocks around …
Well, we made it through Nvidia (NVDA). The hype surrounding last night’s earnings report was as high as we can remember for any stock reporting earnings in the past and reminiscent of Cisco (CSCO), Intel (INTC), or Microsoft (MSFT) reports in the late 1990s, or Apple (AAPL) reports in more recent years. NVDA’s report wasn’t great, but it wasn’t bad either. The company managed to report better-than-expected EPS and sales, while slightly raising sales guidance. That was good enough (so far) for investors who had set the bar low in recent weeks. The stock is currently trading just about 2.5% higher in the pre-market, and Nasdaq and S&P 500 futures are riding its coattails trading higher by more than 0.5%.
Bulls will take it, but as the last few days have shown us, we’re in a market environment where what the market is doing right now is hardly indicative, no less a guarantee, of where we’ll be an hour from now let alone by the end of the day. Add to that a ton of economic data and several Fed speakers on the calendar, and it’s sure to be an eventful day!
What happened to sentiment? Everywhere you look, fear has set into the collective mood. Indices that measure economic uncertainty have shot up to record highs, even taking out their prior extremes from the early days of Covid. The latest measures of consumer sentiment from the University of Michigan and the Conference Board also showed much larger than expected declines in their latest readings. But nowhere has the negative turn in sentiment been more pronounced than in the equity market.
The CNN Fear & Greed Index gauges stock market behavior by looking at momentum, breadth, options activity, strength in the junk bond market, and demand for safe havens. As of this morning, the index was at 21, putting it in the “Extreme Fear” range.
Over the last year, the current level of the CNN Fear & Green Index is among the lowest. The only time it was lower was in early August when markets briefly sold off as the Japanese equity market crashed over 10% in a single day.
The Fear & Greed Index isn’t just an outlier either. The weekly results of the American Association of Individual Investors (AAII) survey just came out, and the bears are out in full force. Starting with bullish sentiment, it dropped from 29.2% last week to 19.4%, the lowest reading since March 2023 when Silicon Valley Bank and other smaller regional banks collapsed. Back then regulators had to take extraordinary measures to ensure the soundness of the banking system, and the S&P 500 was down close to 8% from its recent highs. Today, there’s no crisis to speak of (at least that we know of), and the S&P 500 is down just over 3% from an all-time high.
The surge in bearish sentiment has been even more dramatic than the collapse in bullish sentiment. After dropping to 40.5% last week, negative sentiment shot up to over 60% for its largest weekly increase since August 2019. As shown in the chart below, current levels are now higher than any point in the current bull market (since October 2022).
In the entire history of the AAII sentiment survey, there have only been six other weeks when bearish sentiment was higher, and these occurred during the 1990 recession and Iraq’s invasion of Kuwait, late in the Financial Crisis, and most recently, back in September 2022 right before the market lows. A key difference between now and those periods is that in each one, the S&P 500 was down at least 10% from a 52-week high when bearish sentiment exceeded 60%. Today, the S&P 500 is down just over 3%. It takes a lot less to strike some fear into investors than it has in the past. If there is one word to describe the state of investor sentiment right now, complacent it is not.
…Global Factors Explain Most Movements in U.S. Inflation in the Post-Pandemic Period
Conclusion In this post we have shown that once transitory movements are removed, international inflation rates display a very strong commonality. In other words, the slow-moving trends that we see in U.S. inflation rates are not U.S.-specific but are shared by other countries as well. Three global trends capture the bulk of the variation in inflation persistence across countries.
These findings leave us with an interesting question: what explains these global trends in the first place? Our next post will address this issue.
More over the weekend … THAT is all for now. Off to the day job…
