Good morning … #Got20s? Apparently memo went around, go git em …
ZH: Stellar 20Y Auction Thanks To Recent Yield Spike
… build it and they … never mind, you get the idea.
As the wait for Lacy Hunt / HIMCOs Q4 note continues and there is little in the way of price volatility overnight …
30yy DAILY: yields retreat after hitting 5.00% … (re)testing 4.843%
… momentum suggested bonds were overSOLD (stayed so for about a month, as rates moved higher — from about 4.30) and have moved in concert with rates as of late … momentum not YET suggesting any sort of overBOUGHT condition exists and it would appear to ME that the long bond is desperately in search of further input … in the meanwhile, will be watching prior peak (4.843%)
… I’ll take the opportunity to be real brief and move right along and so … here is a snapshot OF USTs as of 643a:
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure … special shout out to Yield HUNTERS as today’s note does include a tweet from the one, the only (the BOAZ Weinstein) …
NEWSQUAWK: US Market Open: USD flat & Bonds hold a bearish bias ahead of jobless claims and comments from Trump … Bonds hold a bearish bias into Trump though benchmarks bounced briefly on strong UK & French supply, but returned to session lows … USTs are modestly lower, in-fitting with peers; Potentially another relatively quiet session in terms of non-supply fixed drivers, with impetus potentially from weekly claims and then a virtual appearance by US President Trump in Davos at 16:00 GMT / 11:00 EST. USTs are modestly lower but also find themselves in a narrow 108-11+ to 108-19+ band. A brief bounce in EGB's following strong French/UK auctions were not seen in USTs, hence still reside at lows.
Reuters Morning Bid (EZ): China's shot in the arm for markets … After drowning for days in headlines about Donald Trump's return to the White House, investors were delivered a bit of a diversion on Thursday with the announcement of new Chinese measures to boost its ailing stock market. Beijing plans to channel hundreds of billions of yuan per year from state-owned insurers' funds into the stock market, including at least 100 billion yuan ($13.75 billion) in the first half of this year, according to China Securities Regulatory Commission head Wu Qing…
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’ …
The early days of the Trump administration have been predictably chaotic. Businesses and investors had better get used to the new environment of radical policy uncertainty
An earlier end to Fed rate cuts is likely to drive the euro below parity later this year. This will take the edge off of the tariff blow to European exports, but it won’t fully offset it
Still, Europe isn’t powerless: the EU has long prepared for negotiations with Trump, while the German election could free up much-needed investment to deal with structural competitiveness challenges
We preview the German elections in the first of a series of articles in this month’s Spotlight
Regional updates: The consumer is finally waking up in the Eurozone, helped by ECB rate cuts, while in the Netherlands, stronger domestic demand is likely to partly offset looming headwinds for trade
In the US, the goldilocks economy is back for now, but Trump policies will likely put an end to Fed cuts
China is seeing tailwinds from Beijing’s policy pivot and trade frontloading, ahead of likely US tariffs
…US: Powell shapes the present, Trump holds the future
Headline macro data returns to goldilocks’ ‘just right,’ just before Trump returned to office
Disinflation to resume; labour market not out of the woods yet
Rate cuts possible and likely in the first half of 2025; second half determined by Trump policy
President Trump officially entered the White House this Monday, following a notable two-month transition period since his election. In his first days in office, he has signed numerous executive orders, focusing predominantly on immigration, fossil fuels and government HR policy. As the new administration begins, fresh fiscal policies are causing reverberations, but recent data by itself is enough to offer a new perspective on the U.S. economy. The combination of fiscal, and especially monetary policy, over the last four years, saw an economy with continued strong momentum, and an quasi-victory over inflation. The closing month of President Biden’s term saw an inflation report consistent with the 2% target and a seemingly robust labor market. What implications do these developments hold for the economy, the Federal Reserve, and President Trump?
While the December CPI report was surprisingly benign, inflation has resurfaced since the start of the easing cycle. The 3m/3m inflation rate highlights that excess inflation - defined as the component’s rate above to its 2015-2019 average - is predominantly concentrated in the transportation sector. Excess CPI inflation also has a large shelter component, which is notably smaller in the PCE measure due to lower weighting. We are optimistic that disinflation will continue its December impulse in the first half of 2025. Even though shelter inflation has increased again from its August low, it is still significantly lower than in the first half of 2024, and indicators like those from Zillow showing no renewed pressure and even a decline towards the end of 2024. Residual seasonality contributed to the rise in transportation inflation, but we anticipate it will exert a dampening effect in the early months of 2025. Consequently, we expect disinflation to continue at the onset of Trump’s presidency—a development he might claim as a victory.
Our view on the labour market remains less optimistic. While the latest report was strong, the overall trend remains a source of concern. Non-farm payrolls are scheduled to be revised down significantly in the January report, slated for release on February 7th. Moreover, hiring over the past year has become increasingly concentrated, with nearly 90% of employment gains in the latter half of 2024 stemming from just three sectors, which collectively constitute only 42% of total employment. Government, education and health services are noncyclical, while job creation in leisure and hospitality is not necessarily a sign of a strong economy, but rather a consequence of the broader trend towards services consumption. Other sectors have seen minimal hiring, presenting a different picture of U.S. economic dynamics compared to the headline figures. This concentration increases vulnerability to negative shocks, particularly given expectations that government hiring is likely to contribute less positively under the new administration.
Last week we outlined a revised path for the federal funds rate. Inflation data in the last quarter of 2024 was a bump on the path to 2%, but we expect disinflation to resume in the first half of 2025, giving the Fed room to consider easing rates further. We expect the fragile labour, with an overall downward revision, and a number of poor reports to feed concerns about the employment side of the mandate, leading to one or two more cuts by the Fed. In the second half of the year, Trump policy is likely to start to push the economy in a different direction. The tariffs are expected to provide an inflationary impulse, pushing rates up, but changes in immigration policies, and abrupt shifts in federal hiring practices could significantly impact the labour market, pulling rates down. Trump inherits an economy with strong momentum that continues to exceed expectations. The path for his proposed policies to have a positive impact on the economy is narrow, while the downside risks are large. Trump holds the future, but he must navigate carefully to preserve its, and his, promise.
CHINA NEWS overnight making the rounds … from fan favorite …
… Overnight in Asia, the market rally has continued for the most part, with Chinese equities leading the way, including the CSI 300 (+1.07%) and the Shanghai Comp (+1.35%). That’s been supported by comments from the China Securities Regulatory Commission, whose chairman said that mutual funds should increase their onshore equity holdings by at least 10% each year for the next 3 years. So for equity markets, that helped to offset concern about potential tariff threats. However, South Korean equities have underperformed this morning, with the KOSPI down -0.72%. That comes as South Korea’s growth data was weaker-than-expected overnight, with Q4 GDP only up by +0.1% (vs. +0.2% expected), and annual GDP for 2024 was up +2.0% (vs. +2.1% expected). That continues a pattern of pretty flat growth in recent quarters, with a -0.2% contraction in Q2, followed up by +0.1% growth in Q3 and Q4 …
The second of our series on the US consumer, with views from economics, credit and equities.
Key takeaways
Momentum in consumer spending is continuing, and real goods spending is outpacing services in 2H24. Growth in labor income and wealth are supporting consumption.
We expect nominal consumption to moderate to 2013-19 averages as we assume that in 2H25, restrictive immigration and trade policies weigh on economic activity.
High-income cohorts had large increases in wealth, which should support their consumption. Top 20% comprise about 40% of total, and 60% of durable goods spend.
Record home prices growth contributed to this wealth increase. While we expect home prices to be range bound from here, we do not expect price declines.
US Equity: we are underweight Consumer Staples and Consumer Discretionary Goods, and have a preference for Consumer Services that are less exposed to tariffs.
Wait, what? Tariffs NOT the answer, you say … some DO say …
… US initial jobless claims data is likely to start to be affected by the California fires. Of course, given the demographic of LA County many people may be able to work remotely. However, service sector workers serving the inhabitants of the area are at risk of unemployment.
US President Trump threatened to tax US consumers of Russian goods if Russian President Putin did not start negotiating an end to Russia’s war against Ukraine. This may revise investors’ expectations about a possible ceasefire as it seems a weaker policy than Trump’s earlier statements implied. There are few US consumers of Russian goods. Sanctions against Russia might have more impact, but the effectiveness of sanctions tends to decay over time.
Same shop with some ‘good’ news on ‘flation …
UBS Evidence Lab: Inflation continues to stabilize, offset by better manufacturing
…Nowcast suggests continued moderation in core inflation Preliminary retail spending estimates 0.10% m/m, still accelerating from last month's reported 0.30% m/m, but at a moderated rate. For January, UBS Evidence Lab Nowcast expects the core CPI to continue to stabilize with increase of 0.20% m/m, below the US Economics team's preliminary estimate of a 33 bp increase. New and Used vehicle price decelerating offset by higher lodging and airfares. Rents continue to increase m/m, but at a relatively stable rate. The Nowcast points to a headline CPI SA m/m increase of 0.32%, impacted by higher energy prices. The US Economics team's preliminary estimate for headline CPI is a 37 bp increase.
The Nowcast projects the ISM manufacturing composite index to come in at 50.1, inflecting above 50 for first time since late 2022. Nowcast also predicts overall industrial production to increase 160 bps m/m (seasonally adjusted). Total IP y/y is estimated at 1.9% y/y, up from last month's reported 0.5% y/y. However, auto SAAR of 15.7 million is expected to moderate from recent month's >16 million strength.
… And from the Global Wall Street inbox TO the WWW … a few curated links …
POSITIONS. Lives. Matter. And nobody writes ‘bout em better than EBB
Bloomberg: Bond Traders Trim Two-Year Futures Bets as Tariff Talk Picks Up
Open interest in the maturity drops five straight sessions
Trump has discussed tariffs on Canada, Mexico, China, EU
Bond traders are unwinding bets on two-year Treasury futures as lingering questions around President Donald Trump’s tariff plans cloud the outlook for inflation.
Open interest, or the amount of risk held by traders, dropped in the maturity that’s most sensitive to the Federal Reserve’s policy path for five straight sessions through Tuesday. It’s sunk to the lowest level since the March contract became the most-traded maturity, back in November. The combined amount of position trimming since Jan. 14 amounts to about $5.8 million per basis point, or roughly $32 billion of cash two-year notes.
The pullback has come as the focus on the president’s tariff proposals has intensified. On Tuesday, Trump widened his tariff threats to include China and the European Union, after taking aim at Canada and Mexico the prior day, when he took office. However, after promising steep levies during his campaign, he has yet to impose any.
The ultimate levels the administration decides on, and the pace at which they take effect will be key to how markets assess their inflationary impact and the timing and magnitude of any additional Fed interest-rate cuts. Worries that the tariffs could reignite inflation have helped push wagers on further Fed easing out to mid-year.
The dumping of positions in two-year futures has resulted from a mix of both short covering and the liquidation of long positions during a volatile stretch when markets absorbed the tariff comments, cooler-than-forecast inflation data and dovish remarks from Fed Governor Christopher Waller…
This next link is for those paying special attention to bankruptcies and what, if any, macro / markets implications are to be derived …
… Recent data from S&P Global Market Intelligence revealed that corporate bankruptcies reached a 14-year high last year, with 694 public and private companies filing for bankruptcy in 2024. This surpassed the recent high of 638 in 2020, when the U.S. and global economies trudged through a worldwide pandemic, marking the largest number of bankruptcy filings since 2010, when 828 companies went under in the wake of the global financial crisis. Filings came in at a steady clip throughout 2024, with more than 57 companies announcing bankruptcy in nine out of 12 months, peaking at 70 during the month of June. The consumer discretionary sector bore the brunt of the bankruptcies with 109 companies, or nearly 16% of total filings. High-profile bankruptcies included Spirit Airlines, Red Lobster, Tupperware, and Big Lots.
…Conclusion The continued rise in corporate bankruptcies is noteworthy, but borrowing conditions will likely continue to improve as the Fed extends its policy easing in 2025, albeit at a slower pace than initially expected. Additionally, consumer spending is likely to remain robust as inflation continues to moderate and personal and discretionary income remains intact.
From a market perspective, we expect stocks to move modestly higher in 2025, while acknowledging reasonable upside and downside scenarios. Upside support could come from economic growth, a supportive Fed, strong corporate profits, and business-friendly policies from the Trump administration. The most likely downside scenarios involve re-accelerating inflation, higher interest rates, and geopolitical threats that do economic harm.
