while WE slept: USTs bull flattening; update from a 'traded out bull' (best in biz...); no price hikes for U ('47 TO autos); USTs lose hedge properties?
Good morning … except if you might have been stopped out of a long as momentum rolled over (discipline, see BMO below) in face of what COULD be a dipORtunity …
… Timing is EVERYTHING and it’s been said … if it weren’t for BAD timing I’d have none at all.
Good morning … especially on heels of yesterday where we hit an interesting TLINE — a sticksave of sorts, a dipORtunity — and it held … it was noted as a level to consider coverin’ a short or perhaps consider a ‘rental’ … Watching the triangulation closely on into the weekend and Monday’s month-end and NOT takin’ a victory lap, just sayin’ …
Good morning … unless of course you were caught up in the good UGLY auction yesterday …
ZH: Ugly, Tailing 7Y Auction Sees Lowest Foreign Demand In 3 Years
… rather than ugly or tailing, lets call it what it was … a dipORtunity …
Good morning …
… Overnight in Asia, the major equity indices have seen sizeable losses, with the Nikkei (-2.34%) and the KOSPI (-2.14%) both slumping. In Japan, matters weren’t helped by the Tokyo CPI report for March, which came in stronger than expected at +2.9% (vs. +2.7% expected). In addition, the measure excluding fresh food and energy moved up to +2.2% (vs. +1.9% expected), the strongest in a year. In turn, that’s added to the momentum for further rate hikes from the BoJ, and the Japanese Yen has strengthened +0.10% this morning against the US Dollar. Elsewhere in Asia, the Hang Seng (-0.85%), the Shanghai Comp (-0.65%) and the CSI 300 (-0.42%) have all experienced losses as well … -DBs Early Morning Reid (28 March 2025, more below…)
Good morning … unless of course, yer an automaker who’s been warned / threatened …
March 27, 2025 9:00 pm ET WSJ: Trump Warned U.S. Automakers Not to Raise Prices in Response to Tariffs Threat came in a call earlier this month, in which carmakers feared punishment if prices go up
When President Trump convened CEOs of some of the country’s top automakers for a call earlier this month, he issued a warning: They better not raise car prices because of tariffs.
Trump told the executives that the White House would look unfavorably on such a move, leaving some of them rattled and worried they would face punishment if they increased prices, people with knowledge of the call said.
Instead, Trump said, they should be grateful for his elimination of what he called former President Joe Biden’s electric-vehicle mandate, which involved subsidies and emissions requirements to encourage electric-car production. He made a lengthy pitch for how they would actually benefit from tariffs, two people on the call said, adding that he was bringing manufacturing back to the U.S. and was better for their industry than previous presidents…
… with supply in rear view mirror and we can move on TO the DOGE’d data …
ZH: Is DOGE Winning? Continuing Jobless Claims In DC Highest Since 2021
… by days end, all that glitters is a golden yield curve? No, that ain’t it but …
ZH: Yield Curve Hits Steepest In 3 Years As Gold Rips To New Record High
Good morning. I’m done … here is a snapshot OF USTs as of 715a:
… HEREis what this shop says be behind the price action overnight…
… WHILE YOU SLEPT Treasuries are bull-flattening with the long-end ~3.5bps richer with IG supply waning and sovereign supply digested. There was a grind higher throughout Asia on light volumes despite Tokyo core CPI printing stronger, while early London saw bunds outperform after much weaker Spanish and French inflation data. Contrary to price action, desk flows have leaned towards better selling in intermediates and flattening interest from fast money accounts. Overall volumes are ~70% with the dollar largely flat, but high beta currencies losing ground. US stock futures are modestly lower after Asia stocks fell, with NKY and KOSPI down ~1.9% each. Crude is -0.2%, Gold +0.5%.
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
NEWSQUAWKUS Market Open: US futures approach PCE in the red following the overnight tone and further risk aversion from earthquakes in Myanmar; Carney to speak with Trump today … USTs hit a 110-24 peak but since pulled back modestly but remains comfortably clear of the overnight 110-15 base. The session ahead is focussed 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’ …
GDP confirmin’ …
27 March 2025 Barclays: Third Q4 GDP: Estimates reaffirm spending momentum
The BEA's third estimate boosted Q4 GDP growth by 0.1pp, to 2.4% q/q saar, with downgraded consumption more than offset by upgrades to net exports. The incoming GDI estimate placed growth at 4.5% q/q saar, downplaying the measured deceleration in GDP from Q3 to Q4.
Never too soon for an NFP precap, am I right …
27 March 2025 Barclays: March employment preview: DOGE still more bark than bite
We expect the March employment report to show a 125k job gain, slowing from 151k in February. We forecast a steady unemployment rate of 4.1% and see hourly earnings growing 0.3% m/m (3.9% y/y). Risks are skewed to the downside, with the DOGE layoff picture still taking shape.
An end of day update from BEST IN BIZ (who was stopped OUT a long in bonds … it happens) …
… As for an update on our trading book, we were stopped out for a loss on our long position in 30-year bonds (entered March 6th at 4.60%) on Thursday at 4.72%. We remain constructive on duration in the medium-term, even as it’s not difficult to imagine another 10 bp higher in 30-year rates as the trade war intensifies – with all that implies about the forward path of inflation. 4.75% is initial support in the 30-year sector and if that level is convincingly breached, support comes in at 4.80% before a narrow opening gap from 4.830% to 4.832%. Then comes an isolated yield peak from February 12th at 4.860%. Momentum hasn’t been officially oversold since mid-January, and with the fast stochastic measure now above 80, a respite from the selloff could soon be on the radar. Should we see a bullish reversal, resistance comes into play at an opening gap from Wednesday at 4.662% to 4.659% before the 100-day moving-average of 4.650%. Then comes another unfilled trading zone from Monday at 4.601% to 4.589%…
Check me if I’m wrong here but if you can’t use USTs to HEDGE with then whatever will I do (oh, right, I left that biz 3+yrs ago …)
27 March 2025 DB: Weakening Hedging Properties of US Treasuries
We highlighted yesterday that the 10-year US Treasury may not be a good hedge in a supply-side driven recession. We used the (admittedly extreme) example of the negative supply shock to oil prices in 1973 to illustrate this point: the 10-year US Treasury yield was more than 125bp higher at the end of the 1973–75 recession than just before it started.
Following the theory, here's the practice. Over the past month or so, the S&P 500 is down ~5%. In contrast, the 10-year US Treasury yield has remained broadly unchanged.
This recent dynamic fits the historical patterns in the correlation between bonds and equities. When inflation is high (empirically, core CPI > 3%), bond yields and equities tend to be negatively correlated, i.e., bond and equity returns are positively correlated. As a result, in a higher inflation environment, bonds tend not to provide a good hedge for equities. This is the case even without considering whether the current geopolitical environment is potentially eroding the value of US Treasuries as reserve assets.
In summary, unless credible fiscal tightening takes place in the US, one should be wary of assuming that the 10-year US Treasury will retain its hedging properties and that yields will decline in line with the more "traditional" pattern observed during demand-led recessions. Moreover, when USTs are less effective as a hedge, they command a higher risk premium. This is one of the reasons behind our higher term premia view.
… maybe not so much for hedging but then how ‘bout outright or maybe a curve trade …
Going forward, USD steepeners stand to benefit from several key policy dynamics. Here we briefly run through various possibilities – including the uncertainty shock, upside to US fiscal policy, diminished US exceptionalism, global term premia spillovers, and aggressive tariffs – and propose a 5y TIPS-30y nominal steepener.
… Finally, a quick recap of some nuanced from yesterday …
… Markets struggled yesterday as tariff fears remained at the forefront of investors’ minds, with concern mounting ahead of the April 2 deadline for reciprocal tariffs. Notably, several automakers took a hit given the 25% tariff announcement on Wednesday night. But more broadly, there were signs that investors were becoming increasingly concerned about the stagflationary consequences. Indeed, yesterday saw the US 1yr inflation swap (+9.1bps) hit a 2-year high of 3.11%, even as the real yield on 2yr Treasuries (-11.1bps) fell to its lowest since August 2022 at 0.73%. This combination of elevated growth uncertainty and inflation fears saw gold prices hit a new closing record of $3,057/oz yesterday, and overnight they’ve seen further gains up to $3,074/oz …
… The tariffs also meant that US Treasuries faced several hurdles, particularly with investors moving to price in more inflation. In fact by the close, the 10yr yield (+1.1bps) was up to a one-month high of 4.36%, as was the 30yr yield (+2.1bps) at 4.72%. By contrast, fears about the growth impact led investors to price in more Fed rate cuts this year, and the 2yr yield fell -2.6bps to 3.99%, even as inflation breakevens rose. In turn, that meant the 2s30s yield curve moved up to its steepest level in over 3 years …
Steepeners are popular …
27 March 2025 ING Rates Spark: Still steeper curves
US Treasuries sniff an inflation / price-rise effect from tariffs as the front and centre issue. Curves continue to steepen – in the US driven by an edge higher in long-end rates, while in the EUR a more dovish ECB pricing is in, on the back of the tariff negatives. First country inflation readings on Friday are key to keeping the hopes for an April ECB cut alive
…Treasuries make a break on 4.35%, mostly on inflation worries... …Earlier this week we noted an expectation for the 10yr to range trade between 4.25% and 4.35%. The lower bound represented the level we got to after the recent FOMC meeting. We described the outcome of the FOMC at the time as a one-day trade, which it was. On the following two days, intra day it had a go lower, but each time it ended back up at 4.25%. The 4.35% area then represented the upper end of a trading range that had obtained broadly in the past month. The (unexpected) early tariff announcement shocked a break above 4.35%, at least initially. No shock there. It's simply Treasuries pointing to the price risk that comes from tariffs, especially when they are 25% (not 10%)…
Never too soon for an NFP precap, am I right …
March 27, 2025 MS: Employment Report Preview: A slightly slower March
We expect payrolls slow to 130k from 151k a month earlier and +190k average over the past 6 months. Federal hiring slows, federal layoffs pick up, and we expect somewhat slower private sector gains despite +15k from returning strikers. AHE rise 0.3% & unemployment stalls at 4.1%.
… Same shop with a look at the economic week ahead …
March 28, 2025 MS: US Economics Weekly: Tariff-Induced Uncertainty Strikes Again
President Trump announced tariffs on new cars and parts, and reciprocal tariffs are coming on April 2. These policy measures add upside risks to inflation and downside risks to growth. Uncertainty is high and will remain elevated after next week's announcements.
Key takeaways
If permanent, the announced auto tariffs might add 20-30bp to 2025 inflation.
Assuming full pass-through, higher prices might reduce unit sales by 5%-7.5%.
Judging from recent experience, tariffs are a drag on domestic industrial production and GDP growth.
In 1971, US President Nixon imposed a trade tax on imports into the US, and froze US wages and prices. This was not a success. Faced with rising costs and no ability to adjust pricing, businesses stopped supplying goods. Controls collapsed, and inflation soared. Overnight media reports suggest US President Trump has told US auto companies not to raise prices in the wake of aggressive taxes on imported autos and parts.
The US inflation measure, the PCE deflator, is published, alongside income and spending numbers. The main inflation impact of Trump’s taxes will be felt in second-round effects (US companies raising prices under cover of tariffs, or retailers’ profit-led inflation). The details of the deflator will be important to monitor.
Final US March Michigan consumer sentiment and inflation expectation data is as flawed as all sentiment surveys are. However, any signs of weaker sentiment or higher inflation expectations from Republicans might be a useful signal, suggesting economic reality is penetrating partisan media bubbles…
Economy revised HIGHER BUT …
March 27, 2025 Wells Fargo: Q4 GDP Revised Up, But Trade Drag Is Looming Over Q1
Summary GDP came in a tad stronger in Q4 than in earlier estimates and profits rose by the most in two years. But separately reported trade data for February give further credence to the argument that trade is set to take a massive bite out of Q1 GDP growth.
Here’s some special commentary in regards to tariffs and the status / capabilities of consumers to absorb said increased costs …
Special Commentary — March 27, 2025 Wells Fargo: Cushion or Pushin' Considerations for the Pass-through of Tariffs into Consumer Price Inflation
Summary There are a number of ways in which the inflationary impact of the newly implemented tariffs on consumer prices may be cushioned. How well-positioned are these mechanisms to absorb the inflationary shocks of tariffs today relative to the 2018–2019 trade war, and what does that mean for the eventual pass-through to consumer price inflation?
Exchange Rates and Foreign Factors: The state of the dollar and global capacity utilization garners slightly more optimism that the cost of tariffs could be partially shouldered by foreign firms this go-around.
The ability for a stronger U.S. dollar to mechanically offset the inflationary impulse of tariffs is limited by the vast majority (95%) of imports being invoiced in dollars. Rather, foreign firms need to actively adjust their prices lower to help cover additional costs generated by tariffs. But our expectations for a prolonged period of dollar strength and more excess manufacturing capacity among a number of key trading partners relative to the late 2010s could assist in a somewhat lower pass-through rate at the border.
U.S. Profit Margins: Margins in goods-related industries are higher than in the 2010s, giving more room for firms to absorb tariff-related cost increases. But firms may be reluctant to reduce margins given that they are down relative to the more recent memory of a few years ago.
While in the previous trade war firms absorbed a material portion of tariff costs by reducing margins, underlying demand and price-setting dynamics have changed since the pandemic. We see risk that firms will more readily try to push price increases through. The industries most exposed to tariffs are not those that experienced the greatest cumulative price growth in the recent inflationary episode, perhaps limiting the degree to which inflation-fatigued consumers push back on tariff pass-through.
Supply-Chain Adjustments: The broad nature of today's tariffs and scrutiny of tariff workarounds like the de minimis exemption point to more difficulty evading longer-run tariff costs.
In the near term, evidence of more significant front-running of tariffs compared to 2018 is likely to help insulate the effect of higher import duties on consumer price inflation. Yet the wider net of countries being targeted means side-stepping tariffs for an extended period through the rerouting shipments and relocating production will be more challenging.
Our models point to a 0.6 percentage point increase in the year-over-year rate of consumer price inflation based on the tariffs implemented thus far, but we think this is an upper bound. Aside from explicit absorption mechanisms, the staggered implementation of tariffs and the varied timing of firms' responses means the effects of tariffs are likely to ripple through pricing over the next year or two rather than come all at once. Ultimately, we see core PCE inflation remaining near 2.8% this year—0.4 percentage points above our pre-tariff baseline—and subsiding only gradually through 2026 to remain above the Fed's target.
… Finally, on WHY things coming to a halt … ‘cept for the ‘flation, that is…
Mar 27, 2025 Yardeni: Trump Slams On The Auto Tariff Brakes
President Trump's Wednesday night announcement of a 25% tariff on imports of foreign motor vehicles caused a selloff in auto stocks today. Components such as engines and transmissions are also impacted, while previously trade-compliant parts from Canada and Mexico will be slapped with tariffs at a later date.
At the moment, the 25% tariff is expected to be on top of those coming on April 2. That would put cumulative tariff rates as high as 50% for imported autos. Demand for used cars is likely to surge as tariffs make new cars less affordable, which will likely boost consumer inflation (chart). Higher auto prices would depress consumer spending on autos.
Notwithstanding a rough day for auto stocks, the broader market held up okay, as the latest US economic data remained relatively solid on balance. The rebound from the soft patch in January and February is boosting bond yields, though, which combined with trade policy uncertainty is putting a damper on the stock market. The 10-year Treasury yield reached 4.37% today, its highest level in a month.
… And from the Global Wall Street inbox TO the intertubes, a few curated links …
Your guess is as good as mine AND HIS … and by his I mean …
March 28, 2025 Apollo: The Impact of Tariffs on the Economy
Tariffs can be used to boost the size of the US manufacturing sector.
But tariffs, unfortunately, have two short-term negative effects on the economy:
Elevated uncertainty has a negative impact on household and corporate spending decisions.
Tariffs have a negative impact on corporate earnings as companies experience higher production costs.
Uncertainty may have declined modestly in recent weeks, but the next step is for tariffs to begin to have a negative impact on corporate earnings over the coming quarters. Combined with the risk of retaliation, this is negative for the S&P 500.
The bottom line is that the incoming data remains solid, but the soft data is deteriorating. With tariffs not going away, the observed weakness in the soft data should be expected to spill over to weakness in the hard data over the coming months. The next important data point is the March employment report, which will be released on Friday, April 4. The survey week for the employment report was the week of March 12, when tariff uncertainty was very elevated.
The performance of the S&P 500 will depend on the size of the adjustment costs as companies adjust to a new situation with permanently higher tariffs, see chart below.
Note: Using periods with 10% correction and categorizing them if they were followed by a recession. Sources: Bloomberg, Apollo Chief Economist
A dot com with a view … reminds me of something my dentist — Dr. Karp — used to say when I sat down in his chair … ‘Steve, my boy … this gonna hurt you more than me’ …
Bloomberg: Tariffs are coming for your next used car
This Will Hurt You More Than It Hurts Me. Or Will It? Auto tariffs are on their way (although there are still a few days left to delay them again). Liberation Day, next Wednesday, is set to stage the biggest increase in US tariffs since World War II. It’s dominating commentary on markets. But it doesn’t seem to be having that direct an effect on them.
One way to measure that is to compare the global trade uncertainty index, compiled by Bloomberg from news flow, with the VIX index of equity volatility as derived from options trading. Extreme angst over trade has had substantially no impact on stocks:
This seems mighty strange, but Stephen Sosnick of Interactive Brokers suggests thinking of VIX as a proxy for institutions’ demand for volatility protection, rather than a sentiment indicator. “The uncertainty may not have decreased,” he says, “but the demand for protection might have.” That could be because investors have already lightened their exposures, and would be consistent with the relatively calm selloff of the last few weeks…
…Tariffs and Dominoes It seems we can assume that the US will be levying tariffs on motor imports next week. What happens next? Several responses await. We need to know whether other governments retaliate, or attempt to come to a deal; how tight supply chains are and whether the highly integrated US-Mexico and US-Canada production lines can even keep working; how much of the tariff the carmakers try to put on the consumer; and how consumers will respond.
This last gets the least attention, which is reasonable because other effects need to play out before consumers get confronted with having to pay for a new car. But one interesting line of thought is that it could bring the US right back to the scene of the crime that did inJoe Biden’s administration— and reignite used car inflation.
As a reminder, it was a sudden spike in used car prices in 2021 that first set off the inflation scare. The debate over whether inflation was “transitory” revolved in large part around the exceptional move in this one category. It even became fashionable to publish a new version of core inflation to exclude used cars and trucks, in an attempt to show that the problem didn’t extend beyond them. Here’s a reminder of what happened:
Given the political disaster that price spike eventually inflicted on the Democrats, it behooves the new administration to take great care not to stage a repeat. But tariffs on imported new cars might do just that. Mark Malek, chief investment officer at Siebert Financial, puts the problem as follows:
Most discussions around inflation and tariffs have been around how companies might pass along tariffs to consumers... Those price increases will occur over time and only once inventory is cleared off of lots. But there is something else that will occur more immediately, and that is likely to be sharp increases in used cars. If a consumer wants a foreign car and is unlucky enough to want one of the models that is imported, that consumer will have two choices: 1) buy a different model/brand made in the USA, or 2) buy a used car. The popularity of used cars has gone up significantly in the last five years due to the high price points of new vehicles.
When it comes to new cars, he points out that prices will rise just because of the complexities introduced by tariffed components. Malek argues that even Tesla, which does most of its manufacturing for the American market in the US, will pay more for parts because of competition among all manufacturers competing for the existing supply of non-tariffed parts, materials and components.
There is much talk of market guardrails. A major fall for the stock market might well prompt a rethink by the administration. But in a democracy, it’s what hurts voters the most that could matter, which means inflation. The latest survey of consumer sentiment by the Conference Board found expectations dropping to their lowest level in a decade (a period that includes both the pandemic and the inflation spike):
It’s true that such numbers can be driven by political messaging, rather than byreal-life fundamentals. It’s possible that consumers are merely latching on to scaremongering by the Democrats. However, amid all the invective since Donald Trump’s return to power, I’ve never heard anyone accuse the Democrats of being good at getting their message out. Rather, this loss of confidence looks organic. As tariffs dominate conversation, it’s a reasonable inference that US consumers are drawing their own common-sense conclusion that they’ll have to pay higher prices…
… as tax filing deadline draws closer …
Mar 27, 2025 WolfST: US Government Fiscal Mess: Debt, Deficit, Interest Payments, and Tax Receipts: Q4 2024 Update on an Ugly Situation
The Deficit-to-GDP ratio and Debt-to-GDP ratio get even uglier.
… In terms of Treasury notes and bonds (2 years to 30 years), the picture is much more complex. After the rate cuts began, their yields began to surge again. For example, the 10-year yield started 2024 at 3.95% and ended the year 2024 at 4.58%, with some big movements in between. Many of the newly issued notes and bonds were sold at higher interest rates than the notes and bonds they replaced. But they turn over much more slowly than T-bills.
These dynamics form the average interest rate that the government pays on its total outstanding debt. That average interest doubled from 2022 through 2024 with higher T-bill rates, and went as high as 3.35% in June 2024. Over the past three months, it has stabilized at 3.28%:
The ugly Debt-to-GDP ratio: Total debt as percent of GDP rose to 121.9% in Q4, the highest since Q2 2021, based on the revised estimate of Q4 “current dollar” GDP released by the BEA today.
The spike of the ratio in Q2 2020 was the result of the collapse of GDP during the lockdown and spike of the national debt to pay for the stimulus measures. As GDP recovered faster than the debt grew, the ratio came down through Q1 2023. But then, all heck re-broke loose.
As sort of a tragic-comic relief, here is the Debt-to-GDP chart going back to 1966. Note that inflation cancels out in the Debt-to-GDP ratio, as it is in both the numerator and the denominator: total debt not adjusted for inflation divided by “current dollar” GDP, which is also not adjusted for inflation:
The ugly Deficit-to-GDP ratio worsened to 6.3% in 2024, despite the solid growth of GDP. A deficit of 3% of GPD on average is considered close to “sustainable,” at best.
Good news to report … once again, some new evidence the recession that hasn’t happened yet has been postponed …
Friday, Mar 28, 2025 - 12:05 AM ZH: US Recession Not Imminent, Says New Indicator
Executive Summary
The US unemployment rate, now at 4.1 percent, must rise above the job vacancy rate, now at 4.6 percent, as a precondition for a demand-driven US recession.
The more likely outcome is a ‘mini stagflation’: US economic growth slows while inflation stays sticky at, or above, 3 percent.
For bond investors, a mini stagflation means that bond yields are stuck in the post-2023 trading range: 3.5-5 percent for 10-year T-bonds.
For equity investors, a mini stagflation means that the greater risk is a continued deflation of the AI bubble.
In the short term, equities are in a countertrend rally.
But on a 12-month and longer investment horizon, the continued deflation of the AI bubble implies underweighting equities, and especially underweighting US equities.
… The US Unemployment Rate Must Rise Above The Job Vacancy Rate As A Precondition For Recession
The US economy has never entered a demand-driven recession without the labor market being demand-constrained – meaning, labor demand running below labor supply. Here, labor demand must include furloughed workers – because there is demand for their labor, but they cannot work due to extenuating circumstances (such as government shutdown, or social distancing during the pandemic).
On this basis, US labor demand is still running 1.7 million workers above labor supply. Indicating that the labor market is still supply-constrained, and that a demand-driven recession is not imminent.
In a related empirical relationship, the US economy has also never entered a demand-driven recession when the unemployment rate has been below the job vacancy rate, as it is now. This is the important new indicator to monitor.
On this basis, the US unemployment rate, at 4.1 percent, is comfortably below the job vacancy rate, at 4.6 percent. Confirming that a demand-driven recession is not imminent.
Until the US unemployment rate rises above the job vacancy rate, a demand-driven US recession is not imminent.
The Greater Risk Is A Continued Deflation Of The AI Bubble..
