while WE slept: USTs cheaper (supply, IFO, data and Fedspeak ahead); "casual demand" reported'; 'breaks' to low; biggest dislocations (aka dipORtunities)
2yy DAILY: 4.08% is the middle of triangulating range (4.23-3.93) visualized…
… worth note too yields have ‘stuck to the script’ grinding higher along the (red)TLINE which has been / remains supported by momentum (having crossed end FEB, suggesting rates drift) … ahead of 4.23 and IF selloff were to be exacerbated, 50dMA comes in around 4.15% …
… and for somewhat more from someone with a Terminal …
… and in as far as some of the ingredients TO the aforementioned price action / concession …
ZH: Services PMI Soars In March, Manufacturing Tumbles Into Contraction As Inflation Fears Rise
… and then, by days end, the tariff 2step had fully gripped all markets while non-voting FOMC member Bostic had some input as well …
Monday, Mar 24, 2025 - 08:00 PM ZH: Trump Tariff Roulette Sparks Surge in Stocks, Crypto, & Crude; Bonds & Bullion Sold
… Atlanta Fed President Raphael Bostic spooked STIRs markets, cutting his forecast from two to one cut this year. The market shifted hawkishly...
“I moved to one mainly because I think we’re going to see inflation be very bumpy and not move dramatically and in a clear way to the 2% target,” Bostic said Monday in an interview with Bloomberg Television in Atlanta.
“Because that’s being pushed back, I think the appropriate path for policy is also going to have to be pushed back in getting us to that neutral level.”
… AND here we are. Equities had a face rippin’ rally and bonds were sold while today things seem to be more calm awaiting the next headline push. In the meanwhile, you all get to help Uncle Sam finance the national debt (see above) and perhaps yesterday’s 8+bps concession will help. Time will tell and speaking of time telling … here is a snapshot OF USTs as of 706a:
… HEREis what this shop says be behind the price action overnight…
… WHILE YOU SLEPT Treasuries are cheaper and steeper after a modest beat in German IFO data and continued risk-on machinations in Eurostoxx (+1.1%), while USD-weakness is back with EUR (+0.2%) and AUD (+0.5%) leading. Long-end Bunds are modestly underperforming Gilts/USTs with peripherals in-line, while Crude Oil is +0.6% and Copper +0.3%. S&P futures are showing +5pts here at 7am, with about 90% average volumes seen across UST futures. The desk reports some casual demand out the curve from real money in 20s and 30s and accounts have been inclined to add duration against 4.35% in 10s.
… 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: European bourses positive despite lower US futures, DXY veers lower and Crude climbs on Venezuelan tariffs … Fixed benchmarks in the red, weighed on by Ifo and supply; USTs await Fed speak … USTs in-fitting, in a continuation of the sizable moves from Monday, which sent USTs to a 110-15+ base, a low that has since been taken out to a 110-11+ WTD trough.
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’ …
Yesterday, Apollo wrote ‘bout immigration and so too did this British shop … this one hit a few hours later, though …
24 March 2025 Barclays: US Immigration: From tailwinds to headwinds
The post-pandemic surge in humanitarian immigration to the US has come to a screeching halt, with new entries plummeting to nearly zero in February 2025. This sharp decline in immigration flows, coupled with an increase in deportations, could challenge sectors reliant on irregular immigrant labor…
We are a services economy and the best in show recap …
March 24, 2025 BMO: S&P Manufacturing PMI Slips <50; Services Jumps to 54.3; UST 2y Tops 4.0%
The S&P US Manufacturing PMI unexpectedly slipped back into contractionary territory in March's preliminary update, printing at a 3-month low of 49.8 vs. 51.7 surveyed and 52.7 prior. Meanwhile, the Services PMI jumped to a 3-month high of 54.3, outperforming expectations for the index to hold steady at 51.0. On net, this brought the composite PMI up to a YTD high of 53.5 versus economists' expectations for a decline to 50.9 from February's 51.6. Within the details of the release, Chris Williamson (Chief business economist at S&P Global Market Intelligence) said, "A key concern over tariffs is the impact on inflation, with the March survey indicating a further sharp rise in costs as suppliers pass tariff-related price hikes on to US companies. Firms' costs are now rising at the steepest rate for nearly two years, with factories increasingly passing these higher costs onto customers." …
…Despite the renewed tariff optimism, the safe-haven premium in Treasuries remains elevated for the time being with 10-year rates well off 4.50% and the S&P 500 below 5800. There’s surely further scope for an unwind of the risk-off-flows tied to the trade war, although it goes without saying that there’s no guarantee investors will have a clear sense of the new global trade landscape at any point in the near-term. If anything, cross-asset flows between the stock and bond markets will remain a particularly relevant driver of the price action as the April 2nd tariff deadline quickly approaches.
Contributing to the upward pressure on yields was a net improvement in US business sentiment, driven by a solid upturn for the S&P Services PMI…
…Along with Monday’s jump in Treasury yields was an easing of the market’s near-term rate cut pricing as the futures market walked back the number of rate cuts priced in by year-end to 61 bp, a swift turnaround from as much as 73 bp being priced in on Friday. Moreover, the federal funds futures market now shows 17 bp of cuts priced in by the June 18th FOMC meeting, 4 bp less than it did at the end of last week. We’re still viewing this as an overly optimistic assumption about the Fed’s ability and willingness to resume lowering policy rates in Q2.
Here, a large French shop talks about how 10yr breaks are too low …
24 Mar 2025 BNP: Quant Trades of the Week: Remaining long USD and slightly pro-risk
KEY MESSAGES Market themes
Our data trackers continue to provide a marginally positive outlook for US data. Overlaying with mispricings, we continue to be biased for long USD and slightly pro-risk via long Nikkei.
We reduce our overall long USD by adding short USDKRW to our existing long USDSGD and USDCHF trade ideas. We discuss vol mispricings that support short USDKRW via options.
US inflation breakevens appear too low according to MarFA™. Downside risks can be hedged using systematic strategies in commodity carry.
Our models suggest that the recent copper rally is different from 2024, and it’s not yet time to fade. In EM rates, we highlight attractive risk-reward opportunities in BRL fly and HUF–PLN spreads.
…Inflation breakeven and commodity carry Highlighting long US inflation 5y5y: MarFA™ has indicated that US market-based inflation expectations have appeared too low amid the growth scare in late February. Recently, however, these measures have shown initial signs of rebounding toward their fair value.
US 10y breakeven currently trades -1.1 z-score below its fair value of 2.39, while USD 5y5y inflation is trading -0.9 z-score below its fair value of 2.49. Both measures were recently deviated by more than 2 z-scores (our threshold for considering a long trading signal).
Combining these mis-pricings with our data trackers analytics suggests that the growth scare appears overdone. We see scope for inflation breakevens to rise over the weeks ahead.
Upcoming announcements on tariffs could also contribute to market-based measures of inflation moving higher. We think the Fed is more concerned about inflation risks than it lets on, but doesn’t want to open the possibility of hikes right now (see US March FOMC: The Evans rule makes an appearance, dated 19 March). This is likely also contributing to a greater focus of the inflation market on soft growth rather than the potential for rising inflation.
Furthermore, while our MarFA™ signal is reasonably short-term (1-4 weeks, typically), we view this as also highlighting attractive timing for medium-term investors to add inflation exposure into their portfolios using breakevens.
This next note asks a very good question and attempts to answer it too and in these answers may be keys to some of the next great trades … or not. Worth a click …
25 March 2025 DB Mapping Markets: What are the biggest market dislocations? March 2025
Markets often behave inconsistently, with patterns that don't make obvious sense across asset classes. This got us thinking about where some of the biggest dislocations are today, considering what looks odd, and therefore what might be ripe for a correction.
Several sprung to mind over the last month. For instance, despite the underperformance of US assets as recession fears have mounted, we haven't seen the usual flattening in the Treasury yield curve you might associate with that. Moreover, US HY is still trading at historically tight levels relative to US cash. Then in Europe, despite a huge regime shift towards looser fiscal policy, front-end yields and ECB pricing have been remarkably unreactive, whilst sovereign bond spreads have actually tightened. And over in Japan, despite an underperformance for equities and rates this year, IG credit spreads have reached their tightest levels since early 2022.
…1. Despite mounting speculation about a US recession, and an underperformance in key US assets, the 2s10s Treasury yield curve (a classic leading indicator) has actually steepened a bit in the last month, the opposite of what you’d expect in a recession scenario…
…2. US HY is still trading at historically tight levels relative to US cash, despite the risk-off move in the US over the last month…
…3. ECB pricing and German front-end yields have been remarkably unreactive this year to the fiscal stimulus announcements and the growing optimism around European growth…
…4. In a reversal of the usual pattern, looser fiscal policy in Europe has coincided with tighter sovereign bond spreads, rather than wider ones…
…5. Japanese assets have generally underperformed their global counterparts this year, with equities and rates both struggling. Yet despite that, Japan’s IG credit spreads have actually tightened slightly this year, to levels last seen in early 2022.
USTs and Bunds and USTs — the inter-relations used to be one traded first hand …
24 March 2025 ING Rates Spark: Treasuries steal a march on Bunds
Tariff-related headlines are taking over, but offer little clarity. Still US risk sentiment reacted positively and lifted UST yields. The opposite happened in Europe. Risk assets lagged and the impact of the fiscal changes is fading from long-end yields, as their economic effects are too far out. Dovish ECB tones still helped steepen the curve
10yr Treasury yield to range trade between 4.25% and 4.35% this week …There will likely be room this week for a trading range between 4.25% and 4.35% on the 10yr. Any attempt to make a material break above this would be constrained by worries about what 2 April brings. And to the downside, we continue to see a hard floor at 4% that can only be broken on materially weak data. The area of 4.25% is a comfortable distance above that…
Personally, I’m DONE with the rain. I KNOW we’re in a deficit status and could always ‘use the rain’ and I KNOW that April showers bring may flowers. Keep ‘em unless YER gonna walk the dog in the rain (and don’t dare tell me there’s no bad weather just bad clothing… :) ) … That said …
March 24, 2025 Wells Fargo: April Showers For Better or Worse, Answers Are Coming for Trade Policy
Summary This year, it is April that comes in like a lion, with the effective date for a range of tariff policies slated for April 2. It will not go out like a lamb either, with Q1 GDP at the end of the month showing just how much of a drag the trade gap exerted in Q1.
In a Climate of Uncertainty, April Will Bring Some Hard Details The latest batch of new tariff policies is earmarked for April 2. Prior deadlines have seen postponements, and news outlets have reported that the original list of tariffs is being pared. Still, barring further exclusions, a litany of new or increased levies are set to go into effect next week.
New tariffs guidance generally falls into four buckets: The first is products from Canada and Mexico falling under USMCA, after a one-month delay. Next are European products, where tariff threats range from a 25% universal tariff to a 200% tariff on European wine or addressing value-added taxes. The next potential tranche addresses specific sectors such as autos or pharmaceuticals. Last are the reciprocal tariffs, which aim to hit U.S. imports from foreign countries by an equal amount that they levy on imports from the U.S.
Until specifics drop, there are three top-of-mind considerations for decision makers:
1. Is this an emergency? Conventional measures involve lag time for official studies and industry feedback. This can be short-circuited by emergency authorization granted through the International Emergency Economic Powers Act (IEEPA). A self-declared fentanyl emergency was the basis for recent China as well as Canada and Mexico tariffs.
2. Saying it doesn’t make it so. Even if the President declares an emergency and uses IEEPA authorization to enact tariffs with immediate effect, the best-laid plans face practical considerations in the real world.
Supply chain disruption: long wait times and lost business from 2021 are still fresh in the minds of businesses and purchasing managers.
Legal and trade agreements: tariffs are out of step with the WTO and USMCA, which means court fights and a loss of good faith for future trade pacts. Congress also has the authority to terminate an IEEPA-declared national emergency through a joint resolution.
Retaliation: Protectionist trade policies are historically met with tit-for-tat retaliation.
Business contracts: U.S. firms have contracts with trading partners that are enforceable beyond our shores. They also have international business relationships that span generations which make it difficult, not to mention unsavory, for business owners to turn their backs on partners overnight.
Political blow-back: Tariffs are apt to stoke inflation or weigh on corporate profits. Neither is a winning campaign strategy.
3. Regardless of what happens in April, trade uncertainty is already contributing to an economic shock. A yawning trade gap is poised to exert a sharp downward drag on first quarter GDP growth. The Atlanta Fed is forecasting the U.S. economy will contract at a 1.8% annualized rate in the first quarter. The first estimate from the Commerce Department is due out on April 30.
… Only time will tell whether tariffs are ultimately posture or policy, but in the meantime, the threat of tariffs is already influencing behavior and driving uncertainty to levels that rival the pandemic (Figure 1).
… here’s what the dog thinks ‘bout them April showers …
… And from the Global Wall Street inbox TO the intertubes, a few curated links …
From The Terminal.com:
March 25, 2025 at 2:08 AM UTC Bloomberg: Trump’s Threat of ‘Secondary Tariffs’ Invents New Trade Weapon
President Donald Trump appeared to invent a new weapon of economic statecraft on Monday by threatening what he dubbed “secondary tariffs” on countries that buy oil from Venezuela to choke off its oil trade with other nations…
…Former President Joe Biden might have expanded the use of the tools of economic statecraft, Lipsky said in an interview. But Trump is “creating whole new tools.”
Treasury Secretary Scott Bessent has described Trump’s use of tariffs as falling into three buckets — a tool to gain leverage in negotiations, a revenue-generating measure to offset the cost of extending the 2017 tax cuts, and as a way to re-balance trade in the US’s favor…
Chicago style, eh …
March 24, 2025 FRB Chicago: The Dollar Channel of Monetary Policy Transmission
This paper documents a new dollar channel that transmits monetary policy across borders. Exploiting unique features of the syndicated loan market for identification, we show that changes in the euro-dollar exchange rate around ECB monetary policy announcements that are orthogonal to simultaneous changes in euro-area interest rates and stock prices affect U.S. leveraged loan spreads. Specifically, in response to dollar appreciation, investors require higher compensation for risk, and borrowing costs for U.S. firms increase. These findings imply a causal link between the U.S. dollar and investors’ risk appetite.
Missed this LAST week and would seem to me that yesterday’s activity gave some of this alpha back but …
Below is the "Chart of the Day" from today's Early Look written by Hedgeye CEO Keith McCullough. If you're interested in learning more about how we approach protecting and growing our capital, make sure to download our free 52-page eBook below.
AND for any / all global MACRO tourists, this just after I hit send yesterday …
March 24, 2025 Macro Monday: The Return Of "Transitory"
There is a lot of key data on deck this week. Given the historic collapse in the Philly Fed Index in March, all eyes will be on leading indicators. We’ll discover if this was a fluke or part of a broader phenomenon. Monday brings the preliminary Market PMIs, and we will also get the Richmond Fed and Kansas City Fed indices on Tuesday and Thursday respectively. One other series that could prove prescient is the University of Michigan Sentiment Survey on Friday. There are a few other data points of interest, but the PMIs will likely garner most of the attention…
The Macro Week Ahead
🏀 Round 1: Doves (5) vs. Hawks (12)
In 33 of the last 39 NCAA Tournaments, a #12 seed has upset a #5 seed (our condolences to Clemson fans). Despite March’s proclivity for upsets, last week’s market-moving event, the FOMC meeting, went as expected. The Federal Reserve held interest rates steady at 4.25-4.50%. Chairman Powell’s press conference had a dovish tone, emphasizing “uncertainty” about the economic impact of tariffs and rising recession risks.
One statement that stood out was Powell’s use of “transitory” when discussing the potential inflationary effects of tariffs. This echoed the Fed’s 2021 misjudgment when it underestimated inflation before aggressively hiking rates. Powell also downplayed the University of Michigan’s inflation expectations survey, which showed:
↗️ 1-year expectations: 4.9% (up from 4.3%) ↗️ 5-10 year expectations: 3.9% (up from 3.5%)
Despite concerns about inflation, markets remain confident in a rate cut this year, pricing in an 84% chance of at least one cut by the June 18th meeting. White House pressure to ease rates is another factor, though the Fed remains independent in its decision-making…
Jimmy P’s got some guesstimates too … his guess is the fat lady hasn’t warmed up yet…
Mar 24, 2025 Paulsen Perspectives: Some Correction Guesses? If economic momentum continues to weaken, investors may finally show greater signs of capitulation and “act” more fearfully, establishing a stronger launch pad for the next leg of this bull market.
After formally entering a “correction” (a decline of at least 10% from a record high), the S&P 500 Index posted a sizable 2.6% bounce from its correction low last week (chart 1). Every investor is now forced to ask themselves, “Is this it”? Is the stock market swoon finally over allowing the Bull to reestablish control?
The answer is “Who knows”? Corrections are notoriously difficult to accurately predict or time. I certainly don’t know for sure whether this correction will still evolve into a bear market (a decline of 20% or more), spend more time in correction mode perhaps falling yet deeper into correction territory (ultimately declining between 10% to 20% from its recent high), or whether last week’s bounce did in fact end this period of stock market turbulence…
…Nonetheless, without a recession, a bear market –while always possible – is unlikely. Since the odds of a bear market are low and considering the S&P 500 has already cheapened by about 10%, investors could reasonably decide to stop worrying much about any remaining correction difficulties and begin investing today for another leg higher in this bull market. While I have no problem with this advice, “my guess” is this correction is not yet over. While I don’t expect a 20%+ drop in the S&P 500, it would not be surprising if it takes several more weeks or perhaps months before the stock market is again setting new record highs. I recommend keeping cash at a minimum and staying mostly fully invested near your individualized maximal equity weighting, but I would also keep equity positions tilted a bit more conservatively. If I am wrong and the stock market is now headed imminently to new highs, you will at least be fully invested. And if it does take longer before this correction finds its final low, then a more conservative investment tilt will buffer the waiting period.
Charts. From the TOP all the way down … here are 10 with one (#4) that stands out to me …
Mar 24, 2025 Topdown Charts: 10 Charts to Watch in 2025 [Q1 Update] Key charts and issues to keep track of in the year ahead and beyond...
…4. Normal no Longer? Here’s the thing on this one, the more you cut policy rates without some kind of recession or deflationary crisis/shock coming along, the more you raise the odds of growth reacceleration and inflation resurgence… and the more the bond market prices that into the form of higher bond yields. But again, there is nuance here — developed markets ex-US have seen a steady surge in bond yields (vs US lower); that’s consistent with global resurgence + US recession (or at least a US growth scare and asset repricing).
“Policy rates have peaked as central banks pivoted to rate cuts. Bond yields also peaked —initially; but that’s changing. Both lines in this chart are going to be at the mercy of the macro-risk-sandwich (a binary prospect: recession = down, reacceleration + inflation resurgence = up).
For a market hooked on rate cuts, 2025 could present a wake-up call; we may need to be prepared for pauses and “unpivots” instead of just consensus cuts.”
… a few more words from the intertubes on PMIs …
Mar 24, 2025 WolfST: Services Activity Jumps in March, Cost Pressures from Tariffs & Staffing Well Up
But “competition limited the pass-through of higher costs to selling price … which will harm profits.”
… Finally, ending on a positive note (unless yer long OJ, that is) …
Tuesday, Mar 25, 2025 - 12:30 AM ZH: First Eggs, Now Orange Prices Crash Most In Half Century
Prices for some of the most common breakfast staples have fallen over the past month. While attention has primarily focused on President Trump's countermeasures — which have helped arrest the rise in egg prices and send them tumbling in recent weeks — orange juice prices are now on track to post their sharpest quarterly decline in over 50 years.
Bloomberg data shows that if losses of 45% persist through the end of the month, the first quarter would mark the largest quarterly decline since the second quarter of 1967.
