while WE slept: USTs, EZ bid (hope for ECB cut); UST investors message, "Chill!" (10s sub 2%) -Rosie; "Biggest Futures Trade on Record Notched in SOFR Market" -EBB
Bloomberg 5 Things (Americas): Good morning. Global stocks are rising after China announced new stimulus measures, while tech shares are set to benefit from Micron’s strong forecast. Meanwhile oil is lower amid higher production prospects and traders await comments from Fed Chair Jerome Powell. Here’s what you need to know…
I’ll kick off this mornings note with a look at 7yy ahead of today’s final installment of ($44b) supply, doing so as I down my 1st gallon of coffee …
7yy DAILY: 3.65% is right at / near bullish (rate cuts) TLINE etched in and so, where we go from HERE matters …
… NOT an exact science (at least not any longer without CMT designation and more precise tool — Bloomberg — and so I’m watching that area in / around 3.65% where the “X” marks a spot … Having said that, a touch more of a ‘concession’ might not mean the end of the trend and would certainly be welcomed by those having to put BIDS on securities in a few hours …
… the good thing is those forced to bid will have the benefit of data AND the lone dissenting (for only 25bps cut) voice from the last FOMC meeting (speaking at 915a just ahead of JPOW (920a) … Fed calendar HERE.
Meanwhile, whatever the impact on 7s will be yet to be determined BUT we do have yesterday’s 5s to try and glean something / anything from …
ZH: Mediocre 5Y Auction Prices On The Screws, Lowest Yield Since March 2023
…go right ahead and create / shape shift whatever narrative you’d like and as you do, i’ll quit while I’m behind and offer a snapshot OF USTs as of 705a:
… and for some MORE of the news you might be able to use…
NEWSQUAWK: Geopols and Chinese Stimulus in focus ahead of US data & numerous speakers … USTs are flat, EGBs benefit on reports that ECB doves are pushing for an October cut and amid reports surrounding France’s fiscal situation … USTs are contained with no follow through to the European-related updates. A particularly packed US agenda with 7yr supply (follows mixed 2yr & 5yr thus far) and numerous data points (quarterly PCE/GDP & weekly Claims) but the focal point is the speaker schedule with Fed’s Powell and Williams. USTs are holding within narrow 114-15+ to 114-19 bounds.
Oil prices have seen a sharp decline since midweek, further accelerated by headlines around Saudi Arabia (link). Techs are a little tricky here and we will need to wait for a weekly close to evaluate further. IF Brent closes weekly below key support at 70.12 (2023 low), it could open a further ~6% move lower.
…WTI (CL1 futures) Like Brent, we have seen a sharp move lower this week, though in this case, we do not have a potential bearish outside day. Nevertheless, the remainder of the setup looks very similar with a cross higher in weekly slow stochastics as well.
What it means: IF we see a weekly close below 67.71 (Dec 2023 low, which we are already testing), it would open a move lower towards very strong support at 62.43-63.64 (Dec 2021 low and 2023 low). IF we bounce from here, resistance is likely at 74.59 (55dMA)
… it would appear MARKETS decided another 50 a fait de compli but Global Wall hasn’t yet decided … they are ASKIN questions though … here are a COUPLE notes pertaining TO the 50s (funny how FCI are now easiest since 2022 and that correlates nicely TO the steepest the curve has been couple years … certainly just a coincidence?)…
Although the September FOMC meeting framed the 50bp cut as a one-off, Fedspeak since then has sounded more open to another large reduction at an upcoming meeting. We discuss our interpretation of recent Fed communications and what it means for the data thresholds that could trigger a second 50bp reduction…
… Earlier this year, we thought that if the Fed decided to cut rates by 50bps, doing so only once seemed unlikely. If they felt the need to get rates more quickly towards neutral, logic dictated they wouldn’t gain much by only doing one larger reduction.
Despite this view, we thought the September FOMC meeting presented the opening 50bp cut as more of a one-off aimed at making up for the missed opportunity to reduce rates in July. By extension, this seemed to indicate a somewhat higher threshold for going 50bps again…
…When combined with mixed data since the meeting – most importantly another soft reading on consumer confidence, particularly with respect to labor market sentiment – the bar to another 50bp reduction in November may not be particularly high…
In this note, we use our high frequency version of the Fed's FCI-G to provide an update on recent moves in financial conditions and quantify their impact on expected growth. Recently, financial conditions clearly eased as a function of the Fed. Notable moves occurred the Friday before the September FOMC meeting on reports suggesting the Fed could deliver a 50bp cut, in the wake of the meeting in which the Fed delivered on that cut, and then to start this week as Fedspeak seemed to convey that the bar for further 50bp cuts may be lower (see "How high is the bar for another 50?").
The baseline 3-year lookback version is now the easiest since early June 2022, while the one-year lookback version is the easiest since January 2022. Recent Fed research suggests that financial conditions as of August had returned to the upper edge of the range which would be consistent with sustained growth. That is, this level of financial conditions (or easier) would predict a GDP growth distribution that is compatible with the historical distribution of future growth outcomes outside of recessions. The recent easing reinforces this message.
… cut rates, FCI get easier, stocks go UP and policy then has already become less restrictive BUT not as far as elusive R* goes …
Not sure WHERE / WHAT to classify this next note from Rosenberg Research but certainly did catch my eye with title of the ‘memo’ …
Rosie: Memo To Treasury Market Investors: Chill!
Okay, I am getting inundated enough now regarding the sloppy behavior by the Treasury market since the Fed cut rates -50 basis points last week that it deserves a response. A little bit of history is in order.
When the Fed cut rates -50 basis points at the onset of the easing cycle that commenced on September 18th, 2007 (from 5.25% to 4.75%), the 10-year T-note yield actually popped the next day to 4.55% from 4.47%. That is because investors bought into the view that the rate cut was better for the equity market than it was for the bond market because, like now, there were visions of rate cuts being coupled with a “no landing” economic scenario. By October 12th that year, the 10-year T-note rate had risen to 4.70% for a +20-basis point increase in the 10-year T-note and my phone was ringing off the hook: “WTF is going on?” I preached patience then as I do now. At the lows, the 10-year T-note yield hit 2.08%.
The same thing happened on January 3rd, 2001, when the Greenspan Fed cut -50 basis points in a surprise intermeeting move, and the 10-year T-note yield spiked to 5.14% that very day from 4.92% the day before as fund flows went straight into the stock market, and for the very same reason cited above….
… Go back to the first jumbo cut of -50 basis points on October 11th, 1984 (after a pair of -25 basis point cuts) and the 10-year T-note yield again refused to rally initially — it was 12.31% that day, and days later, it was sitting at 12.32% — and yet, the low was 7% and this did not even require a recession. Just sustained disinflation.
So, stay the course and stop freaking out over daily or weekly gyrations. History shows that equity investors rejoice more than bond investors do to the initial jumbo rate cut. But the early “sell the fact” that engulfs the bond market proves to be a very attractive buying opportunity because in disinflation cycles, when the Fed is easing, with or without a classic recession, the trough in Treasury yields is down the road. And history shows that, on average, the decline in the 10-year T-note yield from the start of the first jumbo cut to the low is closer to -300 basis points. That would put sub-2% in sight for the 10-year T-note, as an aside.
Here’s one — a concept where doing things depending upon data is BAD … I guess, though, when you READ it — 100% accurate statement ‘cuz … the data is often very bad (meaning, revised LOTS …)
The US offers the “final” revisions to second-quarter GDP alongside annual data revisions. Declining real-time date reliability means that revisions matter to economists. US growth data is generally underestimated quite a bit, in the early releases. This problem may increase in the future—for instance, budget cuts mean that labor market data is likely to become less reliable.
The increased frequency and size of data revisions underscores the dangers of “data dependency” in driving policy. Politically, data revisions do not matter. Economists think about abstract concepts like GDP on a daily basis—ordinary people do not, and instead think about the economy through the warped perception of their own personal experience. Other US data today include the jobless claims numbers, which markets may care about…
Dr. Bond Vigilante Yardeni offering up a sober reality of the American consumer …
Yardeni: When American Consumers Are Depressed, They Go Shopping
Consumer confidence has been relatively depressed for the past couple of years according to the Consumer Confidence Index (CCI) and Consumer Sentiment Index (CSI), which are based on surveys conducted by The Conference Board and the University of Michigan. The Consumer Optimism Index, which we calculate as the average of the CCI and CSI remains down and out (chart)…
The CCI tends to be more sensitive to employment, while the CSI tends to be more sensitive to inflation. Consumers are showing some signs of concern that job availability is diminishing. Inflation has moderated significantly on a y/y basis, but prices are still significantly higher than they were before the pandemic…
… And from Global Wall Street inbox TO the WWW,
MORE from Bolingbroke …
Bloomberg: Biggest Futures Trade on Record Notched in SOFR Market Wed, September 25, 2024 at 1:51 p.m. EDT·2 min read
Bring out yer dead … 60/40 is dead am certain by now you’ve heard and so …
…6) A Few Interesting Stats… …b) The US 60/40 portfolio (60% stocks, 40% bonds) is up over 29% since it was declared “dead” last October (See video discussion here).
… and in as far as distress in the corporate bond markets (should NOT be any OR it should be getting less distressful given rate cuts, right?) …
