Good morning … Cash USTs are open and are a touch higher in the wake of all that was missed yesterday. Here’s a look at 20yy as it appears to be leading the list of OTRs higher this morning …
20yy DAILY: the (red)UPTREND line remains intact …
… and momentum crossing over bearishly and this, despite rate CUTS …
… for MORE robust techAmental discussion and just about everything other than 20s, see below …
US yields, which have been climbing since September, are showing signs of trend exhaustion. While we could still see some short term upside, we are closely watching momentum indicators to indicate a move lower…
AND … lets jump right (back) in … here is a snapshot OF USTs as of 647a:
… and for some MORE of the news you might be able to use…
NEWSQUAWK: US Market Open: Equities on the backfoot; USD continues to advance & Bunds are bid post-ZEW … Bonds are mixed, USTs are flat ahead of several Fed speakers whilst Bunds are bid after poor German ZEW figures … USTs are softer but only modestly so, with US-specific newsflow somewhat light as we count down to a handful of Fed speakers today before CPI and Powell later in the week. Currently, at the mid-point of a 109-24+ to 110-04 bound, yields firmer across the curve which is a touch flatter as it stands.
Opening Bell Daily: Bitcoin eyes $100K … Bitcoin's path to $100,000 has fewer obstacles than ever … A pro-crypto White House, bitcoin-friendly lawmakers, and booming investor enthusiasm have pushed the token up more than 30% since election day.
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’ … First UP on GLOBAL PMI …
ABNAmro: Global manufacturing PMI shows some improvement
Global manufacturing PMI shows first improvement in five months, still in contraction mode. Global excess supply conditions continue, which helps keep a lid on global goods' price pressures.
…USD rates: Yields to fall gradually with Fed cuts Data points to gradual easing cycle and modest fall in front-end yields: Data over the past month has pointed to a resilient US economy and encouraging disinflation signs. Jobless claims look stable, the unemployment rate sits at 4.1%, the Atlanta Fed GDPNow estimate is pointing to 2.5% GDP growth in Q4, and core PCE 3m and 6m moving averages are nearing the Fed's target (~2.7% y/y). The labor market showed some softening at the October payroll release with decent downward revisions, but this was muddied by weather and transportation strike effects. The Fed acknowledged this at the November FOMC meeting with Chair Powell saying labor market conditions remain solid, the labor market is not a significant source of inflation, and hiring would be somewhat higher if not for the storms/strikes.
With markets still pricing a terminal rate closer to 3.75-4% (versus our baseline of 3.25% by end-2025), we expect front-end yields to continue trending lower. However, we doubt they will quickly reprice closer to our baseline, as the bar for a Fed skip is low and will depend on the next two CPI prints and the next NFP release.
Republican sweep would point to higher term premium and stickier long-end yields: The long end of the curve faces similar hurdles, but has seen a strong revival of term premium drivers such as economic strength/higher neutral rate expectations, elevated UST supply and funding constraints. ACM 10y term premium is back to levels last seen in early November. 10y yields are sitting 20-30bp above our fair value model with the Republicans seemingly near an election sweep. This is mainly due to the high likelihood of expansive tax cuts that will require larger increases to UST supply in the medium term, on top of the record auctions the market is already absorbing. In the long run, tax cuts bode well for financial conditions and business investment, which may see further upward revisions in the Fed's long-run neutral rate.
We expect term premium and 10y yields to remain sticky until more clarity emerges on the policy agenda that Trump and Congress will pursue once officially in office in the new year.
… one of, if not THE best Tech-A-Mentalists out there …
US yields, which have been climbing since September, are showing signs of trend exhaustion. While we could still see some short term upside, we are closely watching momentum indicators to indicate a move lower…
…US 5y yields Yields have broken above 4.12-4.13% (55w MA, 200d MA) on a weekly basis. The next strong resistance is only at 4.43% (76.4% Fibonacci). However, we struggle to see yields go much higher from here at the moment. Daily slow stochastics has already crossed lower from overbought territory, while markets have retraced the post US-election high in 5y yields.
IF we see a cross lower in weekly slow stochastics, which is also in 'overbought' territory. IF we see this, it would suggest lower yields. Support is at 4.12-4.13% (200d MA, 55w MA), followed by 3.77% (55d MA).
… and more for all the on the runs … highly recommend one and all tech-A-mental gearheads check it out …
… everyone’s fav analyst on higher stocks, financial conditions and rate CUT expectations …
… The post-election rally edged higher yesterday, as the S&P 500 (+0.10%) closed above the 6,000 mark for the first time, posting a fourth consecutive record high following the election and its 51st of 2024 so far. In fact, the index is currently experiencing its strongest YTD performance since 1995, having risen by +25.82% since the start of the year, and it’s the first time since 1997-98 that it’s on course to post back-to-back annual gains above +20% and only the third time in 100 years. So it was another strong performance, with the Dow Jones (+0.69%) closing above 44,000 for the first time as well, just as the small-cap Russell 2000 (+1.47%) closed just 0.3% from its all-time high back in November 2021.
This rally has led to a significant easing of financial conditions, but yesterday also saw investors dial back their expectations for rate cuts yet again. For instance, the rate priced in by the December 2025 meeting was up to 3.82% yesterday, meaning that investors are only pricing in three more 25bp rate cuts by the end of 2025. Bear in mind that’s risen by almost 100bps in just over six weeks, thanks to positive US data and the election result. So this is a significant reassessment of the Fed’s outlook, and with investors pricing in fewer rate cuts, the dollar index strengthened another +0.52%, reaching its highest level since early July. A reminder that our US economists believe a terminal rate above 4% is now assumed to be the base case (see here for more).
Given the Veterans Day holiday, cash trading in US Treasuries was closed yesterday. But futures markets showed them losing ground across the curve, with 2yr, 5yr and 10yr futures all pointing towards higher yields. This morning in Asia they've crystallised this with 2 and 10yr yields up +3.8bps and +2.1bps, respectively. That also comes ahead of the CPI release tomorrow, where there’s been some concern about another robust print, particularly after monthly core CPI was at a 6-month high in September. We’ll have to see what that brings, but inflation expectations have risen quite a bit over the last couple of months, with the 2yr inflation swap up from just 1.99% on September 10 to 2.62% yesterday, so another upside surprise would only accelerate that trend. That said, our US economists expect core CPI to tick down in October to +0.26%. …
… somewhat MOAR from same shop over in Germany and in longer-term context …
DB: Long-Term Asset Return Study - Lessons from the 1st Quarter Century of the Millennium
Although this century technically started on January 1st 2001 (as our calendar has no year zero), the reality was that midnight on December 31st 1999 was a landmark moment that was almost universally celebrated as the end of one millennium and the dawn of the next. Those celebrating a year later were few and far between, and more academic and formal in nature. We’ll let readers work out which party they’d have enjoyed the most.
With the end of 2024 now rapidly approaching, this means we are within touching distance of completing the first quarter century (QC) of this millennium, at least by the popular definition of when it started. The premise of this year’s annual long-term study is to review this quarter century (QC). We’ll look at how the world appeared at the end of 1999, what was then expected of the future, and how economies and asset markets performed over the subsequent QC relative to others.
We’ll then look into the themes of the next quarter century based on what we’ve learnt breaking down the world into previous quarter centuries (QCs). Hopefully this approach allows us to step back and ignore short- to medium-term sentiment and biases, and instead look at the bigger-picture trends in financial markets. As an example of this, it’s tempting to think that US equities have been an extremely profitable investment in recent years. But in reality, they’re on track for their second worst quarter century performance in real terms (+4.9% per annum) in the nine QCs since 1800, and it’s also the first one where they’ve under-performed Gold. The +4.9% p.a. real return is still a very good relative performance versus its DM peers, but not spectacular versus history in absolute terms or relative to government bonds.
At the start of 2000 we’d never heard of iPhones, iPads, WhatsApp, Twitter/X, Facebook, YouTube, Amazon Prime shopping, and Uber amongst many other things. Instead we had A-Z map books, Nokia phones, Discmans, fax machines, tube TVs, and floppy discs. The world now looks very different today compared to 2000, whether you look at economic growth, demographics, financial markets, politics or geopolitics, amongst many other things. So in another QC it will look very different again, and simply extrapolating the past can be very dangerous. Hopefully this piece will offer a guide of how to think about the second QC of this millennium. We look forward to seeing the results as we approach the end of 2049.
… As Figure 2 shows, the 5-year rolling real return for the S&P 500 was one of the highest on record by the end of 1999, and in Figure 3, you can see that the CAPE ratio (10 year cyclically adjusted PE) had never been higher in the last century. Interestingly, the other examples of such high returns were all associated with spectacular reversals. So even though the risks were very clear at the time, they are particularly obvious in retrospect. There was a bubble mindset to the global financial system and to the sustainability of economic growth.
The New York Federal Reserve survey of inflation expectations is of little economic relevance, but may be of future political interest. Inflation expectations are skewed towards prices of high-frequency purchases (food and fuel). Trade tariffs, as a sales tax, increase prices paid by US consumers—but generally for lower-frequency purchases. As such, the impact on living standards may be greater than the impact on perceived inflation.
There are several Federal Reserve speakers today. Markets expect the Fed to cut rates again in December (which would mean the decline in interest rates matches the decline in inflation this year). Longer term, the Fed is unlikely to conduct policy today in anticipation of policies that are not yet certain.
Financial markets are looking at US President-elect Trump’s cabinet proposals for a sense of policy priorities. The relatively high turnover of cabinet officials in the previous Trump administration mean appointments now may not signal a permanent policy position.
The COP29 climate change summit continues—US energy company Exxon has urged that the US remain part of the Paris climate accord. That position perhaps reflects the breadth of focus on sustainability. The demographics of the forthcoming great wealth transfer suggest that private capital is likely to remain focused on the topic.
…. and from the good doctor and prof stocks for the long run…
WisdomTree: Fed Flexibility, GOP Sweep Boost Market Outlook
…I still anticipate a 25-basis-point (bp) cut at the next meeting in December but it’s not a slam dunk. The upcoming meeting will hinge on this week’s CPI, PPI, and retail sales data, as well as the November jobs report. If these data surprise to the downside, we will see more pressure on the Fed to cut again…
Over the past three years, most American economists believed that a recession would be necessary to bring inflation down to 2.0% in the US. While the US economy managed to avoid a downturn, those predictions may have been right. The recession, however, was in China as the huge negative wealth effect of falling property and stock prices caused Chinese consumers to retrench…
… And from Global Wall Street inbox TO the WWW …
Amazing performance by the S&P detailed here in this hit …
Apollo: 50 All-Time Highs for the S&P 500 So Far This Year
On average, the stock market closes at an all-time high 18 times each year.
In 2024, the S&P 500 has closed at an all-time high 50 times, see chart below.
Note: 2024 data as of November 10, 2024. Source: Bloomberg, Apollo Chief Economist
… AND as always, whenever Bolingbroke of BBG speaks ‘bout positions and TRADES, we should pause and look …
Bloomberg: Bond Investors Set Up for Jump in Yields With Focus on Trump
Futures imply 10-year yields will open 5 basis points higher
Cash trading was closed on Monday for a holiday in the US
(Bloomberg) -- US Treasuries slumped as investors looked to rekindle a selloff spurred by Donald Trump’s presidential victory last week.
Yields on the 10-year benchmark bond rose as much as 5 basis points to 4.36% as of 8:13 a.m. in London, as short-end bonds led declines. Cash markets were closed on Monday for a US holiday.
Treasuries tumbled in the immediate aftermath of Trump’s election win as investors amped up bets that policies like tax cuts and tariffs will fuel price pressures. That’s reinvigorating a focus on inflation just days after the Federal Reserve delivered a quarter-point interest-rate reduction, with a reading of October inflation data scheduled for Wednesday.
“Better economic data, perhaps a too-dovish Fed, and more policy details from the Trump administration could push Treasury yields higher,” a team of strategists at LPL Financial wrote in a Monday note. “It will take negative economic surprises for yields to fall meaningfully from current levels.”
Over the weekend, Minneapolis Fed President Neel Kashkari said the US economy has remained remarkably strong as the central bank progressed in beating back inflation, but the Fed was still “not all the way home.”..
Herbert Hoover and Donald Trump are a tale of two great post-election surges in the stock market — which proves nothing.
… There is one important market, however, where the immediate post-election Trump Trade has reversed, and this is healthy. Treasury bond yields surged higher as the results came in, signaling alarm that tax cuts and tariffs would mean inflation and higher rates from the Federal Reserve. But after surging some 20 basis points in a matter of hours, the bond market (closed Monday for Veterans Day) calmed down swiftly. By the close on Friday, it had completed a round trip:
It might make sense for the Trump team to treat this as a meaningful shot across its bow, but also take some comfort that there wasn’t appetite to keep yields that high. Even back at 4.3%, the 10-year yield makes it somewhat harder to justify current stock market valuations. Another chart from Shiller’s website shows the extra cyclically adjusted yield paid by stocks compared to long-term bond yields. The lower the excess yield, the less attractive stocks look compared to bonds:
One critical component of bond yields is the policy rate set by the central bank. At the beginning of October, the fed funds futures seemed convinced that policy rates would fall below 3% by January 2026. Now, that figure is close to 4%. The shift in rate-cut expectations as confidence took hold that Trump would return to the White House has been something to behold:
This is good for the Trump administration in that the Fed has less need to cut rates if the economy is growing, so it does show some confidence in growth. But it also suggests that price rises will make it harder to cut. Conventional wisdom has already coalesced on the notion that the Democrats’ defeat was chiefly attributable to their failure to stop the inflation spike. It’s politically imperative to avoid another one. On this front, the bond market is less emphatic. Two months ago, the 10-year inflation breakeven, its implicit forecast of average inflation for the next 10 years, came close to 2.0%, the Fed’s target. In the aftermath of the election, it touched 2.4%. The good news is that it has ticked back a little from there, and remains lower than for much of the last two years:
There’s no great reason for alarm in the bond market. The vigilantes are keeping a watching brief for now. But the markets are not signaling confidence in lower inflation, while fed funds expectations make it harder for stocks to keep rallying…
… more da Fed …
FirstTrust: Monday Morning Outlook - The Fed's Challenge
The Federal Reserve cut short-term rates by a quarter percentage point last week, like pretty much everyone expected. In addition, the Fed didn’t push back hard against market expectations of another quarter-point cut in mid-December, so unless the economic or financial news changes dramatically by then, expect a repeat at the next meeting…
…And remember, even that goal has so far remained elusive. The embers of inflation continue burning. And since we have yet to see a significant or prolonged slowdown in growth, much less a recession, it remains to be seen whether inflation will reach 2.0% or less on a consistent basis.
The bottom line is that the Fed’s inflation goal remains elusive. In turn, that means don’t be surprised if the Fed pauses rate cuts early next year.
… and here’s a great visual of MARG debt and the R2k for any / all interested …
Hedgopia: After Last Week’s Massive Gains, Equity Indices Likely To Trudge Higher
…Amidst all this, margin debt through September has continued to be sluggish, when it increased $16 billion month-over-month to $813.2 billion. In October last year, when stocks bottomed, margin debt was $635.3 billion. So, there has since been a nice uplift in investor willingness to take on leverage, but the fact remains that margin debt remains more than $100 billion lower than the record $935.9 billion posted in October 2021.
The Russell 2000 and FINRA margin debt hold a very tight relationship (Chart 5). Last week, the small cap index shot up 8.6 percent to 2400, with an intraday high of 2402 on Thursday, decisively taking care of resistance at 2260s in place since mid-July. The index is now within 2.5 percent of its high from four years ago, when it peaked at 2459 in November 2021, although on a closing basis it is at a new high. It will be interesting to see if last week’s gains came on a meaningful increase in margin debt. To find out, we will have to wait a little.
It is more than a month before November’s numbers are reported, as the FINRA is yet to report October’s. November’s numbers will be telling.
For now, there is this. Even after last week’s massive rally in the S&P 500 – as well as the Nasdaq 100 – the daily and weekly RSI are still under 70 – mid- to high-60s. Momentum – the weekly in particular – has been in divergence with the price for weeks. This needs to change if equity bulls want to sustain last week’s pricing action.
