while WE slept (why we're all watching 145 USDJPY); "Tightening into a slowdown"; FOMCs decision tree and somewhat more
Good morning … 10yy approaching 3.50% …
… an important level, perhaps a double top (or not), stay tuned …
Important to note that as markets are moving, attempting to (re)price to whatever may be the current narrative post CPI (and ahead of ReSale Tales), the BoJ is NOT — repeat NOT — sitting by idly. The BOJ conducted a foreign exchange rate “check” today as reported by the Nikkei, this is seen as a precursor to FX intervention.
Whatever BoJ does/doesn’t do (and how that relates TO 145 — see below), may be part of the whatever NEXT in markets and something many aren’t yet focused on …
… here is a snapshot OF USTs as of 705a:
… HERE is what another shop says be behind the price action overnight…
… WHILE YOU SLEPT
Treasuries are modestly lower while the curve is little changed ahead of PPI. DXY is lower (-0.35%) while front WTI futures are basically UNCHD. Asian stocks fell following declines in NY yesterday, EU and UK share markets are lower on balance while ES futures are showing +0.25% here at 7:20am. Our overnight US rates flows saw net better buying overall during Asian hours with good two-way flow in the long-end from real$ being a feature this morning. In London's AM hours, downside pressure on USTs persisted with real$ buying intermediates. In the long-end, fast$ sold while asset managers and banks bought amid a few block buys(?) in FV futures. Overnight Treasury volume was ~125% of average with the highest average turnover seen in 2's (135%) and 3's (147%).… first page in our pitch-book used on the West Coast last week. It's the quarterly chart of Treasury 10's showing the secular bull trend break earlier this year, still solidly bearish momentum (not even close to 'oversold' readings yet for this supertanker-like study) and our guess that the next support of some consequence (beyond the 3.50% area cited above) should be ~4.00% for 10's.
… this month's potential Double Top in USDJPY at 145. That's clearly the nearby support for the yen now and also perhaps a visualization of the BOJ's long-anticipated stake in the ground or line in the sand.
… and for some MORE of the news you can use » IGMs Press Picks for today (14 Sep) to help weed thru the noise (some of which can be found over here at Finviz).
With CPI and UST supply in the rear view mirror, a few items from Global Wall Streets inbox which I’ve stumbled upon and think YOU TOO may be interested in.
First, was CP-SKY HIGH … a concession for long bond reopening? JEFF,
30-Year Bond Reopening Results: 1.9bp Short Stop, Another Very Strong Buyside Showing
… The market has been under significant pressure all month since the August auction, but the volatility post-CPI this morning has been even more profound. We were skeptical that investors would want to buy bonds ahead of the Fed given the possibility of hawkish tail risks coming out of the meeting. Clearly this was not the case today …
… Indirects took down 72.1%, the second most on record behind the 73.2% takedown in July
… Looking ahead, we expect that the 30-year point will have a hard time rallying much from here. The WI has basically held steady since the auction results were posted, and normally with such a big short stop and a small Dealer takedown, one would expect some follow-through buying. That hasn't really materialized, so weak hands may be tempted to reauction their supply.
For somewhat MORE (or less), ZH
In as far as what it did to STONKS, well, worst day in 27mo per John Authers visual
…“Expectation is the root of all heartache.” So the great poet William Shakespeare is supposed to have said — although there’s no evidence that he ever actually did. But it certainly played out in American markets Tuesday, which saw US stocks fall in a broad-based selloff after the CPI announcement. Overconfidence leading into the day created the biggest selloff in more than two years:
Across the board, selling sent the S&P 500 down more than 4.3% to its worst day since June 2020, while the tech-heavy Nasdaq 100 losses reached 5% with the big mega-cap technology names taking the biggest hit. Two-year yields rallied the most in more than a month, while the euro’s brief rebound against the dollar wavered.
John goes on to show how stocks often do well as “short of an apocalypse, peak in CPI almost always leads to more equity upside” (at least per Clocktower Group). He ALSO notes the advantage goes to BONDS as the spread between dividends and yields tips scales towards BONDS,
…Buy a 10-year bond, and you’ll get double the yield you would get from stocks:
Looking at that in longer perspective, this is the spread of bond over dividend yields, going back to the eve of the Lehman bankruptcy 14 years ago. This measure correctly signaled a fantastic opportunity to buy stocks versus bonds in March 2020. It now suggests bonds are more appealing than at any time since early 2011 (the year in which S&P downgraded them):
This is a very crude measure of valuation, obviously. Does it really make sense to buy 10-year bonds? “The world in bonds has changed dramatically. It is a completely different market today than it was in January,” says Chaloff. “And we've never seen this before. Never. So would I be a buyer of bonds today? Yes.” …
As far as that CPI, well
US Consumer Prices Blow Away Expectations, Rise For 27th Straight Month
For somewhat more of what Global Wall Street had to say, HERE is ZH,
"There Is No Good News Across This Report" - A Shocked Wall Street Reacts To Today's Scorching CPI Print
With CPI and UST supply in the rear view mirror, a few items from Global Wall Streets inbox which I’ve stumbled upon and think YOU TOO may be interested in.
First up from THE namesake Bank of the USofA, BAML
Global Proprietary Signals - Tightening into a slowdown
Consequences of synchronized monetary policy tightening
Financial markets were rattled at the end of August when Fed Chair Jerome Powell acknowledged a softer inflation print, but emphasized his determination to restore price stability, even at the risk of a recession. As it is, our suite of proprietary indicators depicts a grim outlook for global growth, with almost half of the growth indicators flagging a bearish signal. Yet, we are staring at one of the most aggressive tightening episodes in history with 85% (29 out of 34) of the global central banks in tightening mode – the highest since the subprime mortgage crisis in 2006-07 – thereby spelling out warning signals that appear to be at odds with segments of the investment community which expects a soft landing
With all this CPI bru ha, we’ve almost forgotten about tomorrows ReSale Tales … a large British bank has not, offering
US Retail Sales: August retail sales preview: Credit card model
Our US cards data suggest a small drawback in August retail sales from July levels, led by another notable decline in spending at gas stations. The implied drop would be somewhat more pronounced than official forecasts from our US Economics team.… the correlation for the gasoline sales category is 90%. Yet there also seems to have been a sharper uptick in gasoline sales as suggested by the Barclays card series in the earlier summer months, which seemed to be correcting more recently (Figure 3). A smaller decline in the category thus seems probable, which would offset the downside risk to the headline retail sales number resulting from slower-growing vehicles and parts sales as noted above.
And to know rate HIKES so you’ve got something to CUT is to LOVE the insanity of that idea. HERE are a few words from BBG
…Even as stocks and bonds tanked in the wake of the upside CPI surprise, the seeds were being nurtured for similar episodes. Markets still expect the Federal Reserve to pivot sooner rather than later, no matter how aggressive the anticipated immediate response ends up being to the latest evidence of sticky inflation.
The Nasdaq 100 dropping 5.5% as rates traders signal there’s a chance for a full-percentage point hike next week was a relatively straightforward response, given the optimistic rallies of the past week. However, eurodollar futures increased their expectations for rate cuts next year. Sure, that underscores expectations the Fed’s initial reluctance to hike means it now has to move rapidly enough to almost certainly deliver a recession. But, it also means investors may again bet that each jumbo hike is more and more likely to be the last one before a dovish pivot. How well have those wagers worked out lately?
Last but not least, a couple from the CHARTS department. First on USD dollar strength, Kimble asks (but lets you look for answer)
And if you are ALSO a a visual learner, HERE are some updated weekly charts from a Swiss operation which formerly had its roots up in Beantown. A couple charts of interest,
Whatever YOU make of the economic / markets related ink blot tests is great. Whatever GUNDLACH makes is perhaps MORE funTERtaining and so, ZH notes
'You Have To Get More Bearish' - Jeff Gundlach Says Buy Bonds, Sees S&P Hitting 3,000 On Over-Zealous Fed
Finally, here’s an early look at FOMC decision tree on 21st Sept .. it’s called WHAT IF
… THAT is all for now. Off to the day job…