while WE slept: USTs higher / flatter on strong volumes; "All Aboard the Equities Express"; signs of 'froth building'; happy curve inversion-ersary ...
… am 100% certain these two things are completely unrelated … but for good measure, a TRADINGVIEW of BTCUSD ….
… here’s a WEEKLY with a DAILY inset to show the parabolic move has also come with increasingly overBOT (stochastics) momentum ... which appears to be waning and if I didn’t know this was the BITC I’d say it’s time to lighten up and perhaps even SELL SHORT … truth be known I’ve not a CLUE how to trade BITC and what drives it despite the loose connecting of dots above …
… And with this meager attempted look at BITC … dare I say the word BUBBLE … in mind, I’ll move right along and point one and all to yesterday’s MAG COVER INDICATOR notes (HERE) and just a bit further below where John Authers’ latest OpED worth a look.
Meanwhile … here is a snapshot OF USTs as of 705a:
(of course 20s are leading … :)) … HEREis what this shop says be behind the price action overnight…
… WHILE YOU SLEPT Treasuries are higher with the curve a hair flatter, dragged along by a decent bull flattening in UK Gilts (2s10s -5.25bp) this morning. DXY is little changed and front WTI futures (-0.4%) are too. Asian stocks were mixed, EU and UK share markets are little changed while ES futures are showing -0.3% here at 6:45am. Our overnight US rates flows saw some real$ buying in intermediates during another sleepy Asian session. JGBs were hit on the upside surprise in Tokyo CPI (link above) but a strong 10yr JGB auction drove a quick recovery. During London's AM hours, our desk saw some steepening interest and general demand for the belly (see attachments) from real$ players. Overnight Treasury volume was decent at 120% of average with 7yrs (143%) seeing some relatively elevated average turnover overnight.
… and for some MORE of the news you might be able to use…
NEWSQUAWK: US Market Open: Equities lower, with NQ hampered by AAPL & TSLA, JPY firmer post-CPI; US ISM due … Bonds are firmer, though revised EZ PMIs spurred a gradual hawkish move for EGBs …
Reuters Morning Bid: Apple angst, Tesla tanks, Bitcoin balks (VISUAL bank commercial lending resembles recessionary path)
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’ …
ABNAmro: Global manufacturing PMI creeps back into expansion territory
Global manufacturing PMI rises to above neutral mark in February. This is in line with our expectation of a bottoming out in global industry this year. Impact of recent disturbances in global shipping seems to fade.
BARCAP: Long & Short of It: All Aboard the Equities Express
LO equity exposure rises to a post-COVID record; global macro HFs flip from short equities to long; CTAs near max-long EU equities and indiscriminately long US equities; retail options activity suggest heavier upside buying vs. institutional; retail flows to MM slowing; both real and fast money heavily OW Tech vs. all else.
The world goes long equities. The scramble for equity exposure picked up steam over the last month. Real money investors continue to quickly ratchet up their equity positions, pushing long-only institutional equity exposure to a post-COVID record. Long equity futures positions are hovering near 3-year highs. Global macro hedge funds completely unwound 3Q23 equity shorts and are now quite long equities, joining their multi-strategy equity HF counterparts, which maintain the long equity exposure they built up over 2023….
… Long bond futures positioning takes a breather Asset managers built up extremely long 10Y Treasury futures positions over the last year, and slightly unwound some of this exposure recently. Similarly, the outsized positioning in short speculative bond futures by macro hedge funds (reflecting a highly levered basis trade motivated by the vastly increased supply of Treasuries stemming from Fed QT and deficit financing) also saw a slight down tick from 3Q23 levels. The size and leverage of the trade remains large enough to potentially exacerbate moves in the short-term repo funding market.
BARCAP: China: NPC: Fiscal package not big enough (while many / most celebrating the aid / GOALS announcement overnight by Chinese officials, this note worth a look as it offers another side of the coin…)
We think the fiscal package announced at today's NPC is insufficient to help achieve the ambitious growth target of ~5% this year, given dissipating low-base effects and the deep housing slump. The recurring special treasury bonds suggests the central government is willing to increase leverage in order to contain LG debt.
BloombergBNP US February jobs preview: A gentler version of January’s strength
KEY MESSAGES
A reversal of the seasonal adjustment boost that propped up January payrolls most likely resulted in a slower pace of job growth in February.
An underlying acceleration and broadening of job growth in the more cyclical sectors will support payrolls rising by a solid 220k, we estimate.
Seasonally mild February temperatures likely reversed the inclement weather-driven decline in the work week in January. Longer hours in February will likely weigh on average hourly earnings growth. We estimate hourly wages grew at a 0.2% m/m pace.
We see the unemployment rate rising to 3.8% on account of a participation rate rebound, which has partly been a result of ongoing labor supply shock.
Viewing the heavy event week through our market regime framework favours remaining positioned for a pro-risk environment, supporting equities and EM currencies and FX carry.
US activity data is surprising to the downside. A greater focus on these negative surprises could keep the market in the ‘buying asset’ regime and support global duration. Duration appears oversold in selected EMs.
Higher rates for longer in Europe favours buying oversold IBEX vs overbought DAX.
… The outlook for duration, in contrast, is more tied to future regimes. Recent downside data surprises favour adding duration. We view the regimes as follows:
Expansion regime in February as rate cut expectations were pushed back amid firmer growth expectations (Figure 1). This regime favours risk assets (equities, EM, carry), while USDJPY and bond yields could rise.
Buying regime occurred late last week: This is the most positive regime for risk, but one in which bonds could rally. We favour long duration in Germany.
Tightening regime is a risk, but we think this is unlikely to be realised. This week’s testimony by Fed Chair Jerome Powell or the US jobs report are unlikely to trigger a move into this regime, in our view.
DB: Early Morning Reid (happy Inversion-aversary?)
… One of the clearest moves yesterday was the selloff among US Treasuries, which took place across the curve and reversed the bulk of Friday’s rally. That saw the 10yr yield rise +3.2bps to 4.21%, whilst the 2yr yield was up +7.2bps to 4.60%. Bear in mind that today also marks exactly 20 months ago since the 2s10s curve closed back in inversion territory (after a brief period as the Fed started hiking), where it’s remained continuously since. So we’re now just a couple of weeks from exceeding the lengthy 1978-80 inversion, which is the longest continuous inversion in available data back to 1940 …
JPM View: Market pushes ahead with volatility low and froth building
… Market pushes ahead with volatility low and froth building: Stocks continuing to push to new record highs and Bitcoin surging over $60k may indicate accumulating froth in the market. This may keep monetary policy higher for longer, as premature rate cutting risks further inflating asset prices or causing another leg up in inflation. We see a dichotomy in volatility markets: stock vol is near multi-year lows despite expensive valuations/elevated positioning/high concentration, rates vol remains stubbornly high given uncertainty around the timing/pace of rate cuts, and yet FX volatility has moved sharply lower despite elevated rates levels and vols.
… And from Global Wall Street inbox TO the WWW,
Bloomberg: Forget valuations. Will this market keep going up? (Authers OpED)
Talking about bubbles: There’s a judgment call to be made on individual behavior and group dynamics…
… Capitulation More or less everyone was surprised by the non-arrival of a recession last year, and they continue to be surprised by US robustness now. That forces the strategists for big sell-side firms, who tend to be influential, either to revise their forecasts for the end of this year upward, or to predict a fall between now and then. For example, the following chart was published by the Goldman Sachs equity strategy team in January. It showed the projected path to the target of 5,100 on the S&P 500 by Dec. 31. As we know, the S&P 500 has already got there. This is relevant new information, and prompted Goldman’s team, one of the most powerful on Wall Street, to increase their year-end estimate to 5,200. They’ve also made clear that they don’t think this is, as yet, a bubble:
Savita Subramanian of Bank of America Corp., another of Wall Street’s most influential strategists, announced that her year-end target was rising from 5,000 to 5,400. But she did this in circumscribed terms, saying “our bullish conviction has cooled since publishing our 2024 Outlook,” thanks to “improving sentiment across Wall Street,” which is now strong enough to suggest that BofA’s call should now be neutral. But, she added, “a neutral call is rarely correct” (the stock market generally goes up a lot, punctuated by selloffs, rather than making steady increases), so that the net message from her market-timing tools was “still, in one word, UP.” Her view on sentiment was as follows:
Bull markets end with euphoria. The Sell Side has grown more bullish on equities as highlighted above, but pension fund allocations to public equity are still at 20-year lows, and positioning in up-market themes like high beta stocks and cyclical sectors is at bearish extremes. Areas of euphoria are thematic and secular. We expect the market to broaden beyond these themes, but caution that passive inflows could drive continued momentum in US growth/mega-cap stocks.
When strategists move their calls, they generally bring some cash with them, adding to the pressure on others to capitulate. According to the latest regular tally of official strategist targets kept by colleague Lu Wang, the average year-end forecast is now 4,915, implying a fall of a little over 3% for the S&P over the next 10 months. Others will feel the pressure to rise.
Beyond the strategists, there’s even more of a boost to sentiment when the most redoubtable bears capitulate. Nouriel Roubini, the economist famous for correctly predicting the GFC, has now turned positive and said in his appearance on Bloomberg Surveillance that the economy might enjoy a “no-landing” scenario. To quote Surveillance’s Lisa Abramowicz:
The fact that Roubini, who is known for his gloom, can’t find much negativity in the US economy sends a pretty strong message at a time when the S&P 500 is hitting record high after record high. It’s the reason we’ve already seen so many upgrades to strategists’ S&P targets for year-end, despite high valuations…
FRED: Discounting the future : Long-horizon bond yield data from the US Treasury
The FRED Blog has discussed data from the High-Quality Market (HQM) corporate bond yields release reported by the US Department of the Treasury. In short, that executive agency of the federal government uses the spot rate yields of actual high-quality (that is, low-risk-of-default) corporate bonds to calculate the interest rates of 200 individual bonds with maturity dates extending far into the future. Up to 100 years in the future, in fact.
The FRED graph above shows the calculated interest rate of a hypothetical 100-year bond. The latest data available at the time of this writing is from December 2023: As of that date, the yield of a bond maturing in December 2123, had it been possible then to buy one, was projected to be 5.1%.
This information is used by the Internal Revenue Service (IRS) to calculate the present value of payment from defined benefit plans. The standard formula to compute the present value (PV) of a future value (FV) payment is PV=FV*(1/(1+i)^n), where i is the interest rate and n is the number of periods between now and the future date. The Treasury data provide the value of the interest rates in the IRS’s present value calculations.
So, how are the present values of very distant future payments looking lately? The FRED graph shows that the 100-year interest rate followed a decreasing trend between January 1984 and August 2020. Basic algebra shows that lower values of interest rates, holding constant future values and the number of periods, boost the present value of future payments. The inverse is true when interest rates rise and that has generally been the case during the past three years. Thus, as the present values of very distant future payments decrease, perhaps we should conclude this post by saying carpe diem.
How this graph was created: Search the alphabetical list of FRED releases for “Corporate Bond Yield Curve” and select “Corporate Bond Spot Rates by Maturity, Monthly, Not Seasonally Adjusted.” Scroll all the way down the page to select the series “100-year.”
Financial conditions indexes summarize a broad range of financial indicators with the goal of measuring how financial markets affect economic activity. Evidence from event studies with highfrequency data supports the view that monetary policy is a key driver of financial conditions. The effects are evident, not only around monetary policy announcements but also, indirectly, around macroeconomic data releases. The impact of inflation surprises on financial conditions has strengthened over the past year, likely due to the perceived implications for the future course of monetary policy.
… Figure 1 shows these four FCIs over the period from November 2021 to December 2023, with positive values corresponding to tighter financial conditions and negative values reflecting looser conditions. A value of zero corresponds to the average value of each index over a specific historical period, which is not necessarily a level that is “neutral” for economic activity. Financial conditions started to tighten before the first rate hike by the Federal Open Market Committee (FOMC) in March 2022, and continued tightening during the period of substantial policy rate hikes over most of 2022. Over the period since late 2022, financial markets exhibited some volatility at times, but on net they have become quite a bit more accommodative, despite the FOMC raising its policy rate more than 2 percentage points.
… Figure 3 shows the estimated responses of the Goldman Sachs FCI to monetary policy surprises. A surprise monetary tightening leads to significant and persistent tightening in financial conditions. The size of the impact is moderately large: a policy surprise of 0.1 percentage point leads to an increase in the FCI by about 0.07 index points on the day of the announcement and further increases over the following two weeks.
and allow me to be among those who wishing you all a happy curve inversion-ersary
… THAT is all for now. I shoulda quit while I was behind … Off to the day job…
Powell, tomorrow.....steady as she goes...staying the course
Dr. Doom is "positive"......that kinda makes me nervous.
"No Landing" means No Cuts......WS will have to adjust to that.....