while we slept; world bank warns of that '70s show; OECD cuts; another record (revolving credit); #got10s?
Good morning …
Just about the moment I hit SEND yesterday, a construction vehicle, on its way to job site a few lots away, took down the wiring to a few houses on the street. Ripping internet connectivity right from the pole. Thankfully it was only the internet connection and not power. That was LATER in the day!
That said, I’m still digging through the inbox and so, I’m going to keep this mornings update short and sweet…besides, do you really wanna (re)read a World Bank report …
Or as the OECD reminds us all this morning,
With the three key take-aways:
> The war is slowing the recovery
> Inflationary pressures have intensified
> The cost of living crisis will cause hardship and risks famine
Really wanna think that thru … before bidding on 10yy later on this afternoon? Prolly not.
… here is a snapshot OF USTs as of 705a:
… HERE is what this shop says be behind the price action, you know,
WHILE YOU SLEPT
Treasuries have been led lower by intermediates overnight ahead of this afternoon's 10y auction with 5y and10y yields somewhat stuck in glue near 3%. DXY is higher (+0.25%) while front WTI futures are also up (+1.3%). Asian stocks were led mostly higher by China's Tech names, EU and UK share markets are all roughly -0.4% lower while ES futures are showing -0.45% here at 7:45am. Our overnight US rates flows were largely 2-way in Asian hours with at least 3 clips of block buys(?) seen in FV futures into the price drop. In cash, real$ selling in intermediates was a feature noted by the desk. Overnight Treasury volume was ~140% of average overall…
… and for some MORE of the news you can use » IGMs Press Picks for today (8 June) to help weed thru the noise (some of which can be found over here at Finviz). From IGMs Press Picks you’ll note
World Bank warns global economy may suffer 1970s-style stagflation – Washington Post The global economy may be headed for years of weak growth and rising prices, a toxic combination that will test the stability of dozens of countries still struggling to rebound from the pandemic, the World Bank warned.
And from the inbox while I was unconnected to the outside world, first from the CHARTS department …
1stBOS Multi Asset Macro Pack: Key Market Themes
The renewed turn higher in global bond yields has been the main cross-asset development over the past week, led by European Fixed Income following the reopening from a series of lockdowns in China, the large upside surprise in European inflation and the increasingly hawkish shift at the ECB.
We shifted our view last Wednesday to call for higher 10yr German Bond Yields and the market has subsequently broken out above important long-term support at 1.235/25%, reinforcing our call for a move to 1.49/505% over the next 1-2 weeks.
And from those trying to put the FUN in FUNduhmentals,
Wells Fargo: Where Credit is Due: A Fresh Record for Revolving Credit in April
Amid soaring prices, consumers reached for their credit cards in April, which lifted revolving credit above its pre-pandemic peak for the first time. While this is good in the sense that it points to strong demand despite high prices, it could be bad if it puts households behind the 8-ball in terms of staying current on their debt. A low debt service ratio says that is not yet the case…
… But increased reliance on balance sheets is not a sustainable source of purchasing power for consumers, and only becomes more challenging as the Fed hikes rates quite aggressively this year, which will drive borrowing costs higher. While credit can help bolster spending today, it can come at the expense of healthier household financials tomorrow. We'll get updated data on the broader financial health of households on Thursday in the Flow of Funds data for the first quarter of this year.
For MORE and in a more snarky way, ZH
Shocking Consumer Credit Numbers: Everyone Maxing Out Their Credit Card Ahead Of The Recession
Finally, something else needed at days end — when power company came by to ensure their wires to our home weren’t too low — a flashlight — only in this case, a flashlight for a different purpose.
Wells: June Flashlight for the FOMC Blackout Period
The "blackout" period for the June 15 FOMC meeting starts on Monday June 6. We spell out our expectations in this report for what we think the Committee will decide at the meeting.
We expect that the actual policy changes the FOMC announces on June 15 will be more or less inconsequential in terms of market reaction. That is, the Committee has clearly indicated that it plans to raise its target range for the fed funds rate by 50 bps, and this move is entirely reflected in market pricing…
… The Committee could take more consequential steps in terms of signals about future policy changes. For starters, an upward shift in the "dot plot" seems to be all but assured…
… With the increase to the fed funds rate at the upcoming meeting so well telegraphed, the focus will likely be on what comes next for policy amid a still rapidly evolving and unusually uncertain outlook. Since the FOMC's last meeting on May 4, overall financial conditions have hovered around the tightest levels in two years (Figure 1). Treasury yields remain elevated, credit spreads are still wide, at least by the standards of earlier this year, and the S&P 500 index narrowly avoided closing in bear market territory a few weeks ago. Although there has been some easing in recent days, the tighter stance of financial conditions in May indicates that the Fed's hawkish posture is starting to leave its mark.
The housing market is the sector in the real economy that has started to feel the tightening in financial conditions the most. Since the FOMC's definitively hawkish pivot around the start of the year, the benchmark 30-year mortgage rate has shot up roughly 200 bps on balance. The dampening effect on the market has been greater than expected, with the Bloomberg Housing & Real Estate Surprise Index quickly nearing the lowest levels since late 2018 (lower index values indicate weaker-than-expected readings). Mortgage purchase applications have retreated nearly 30% from their January high, existing home sales have tumbled 14%, and price appreciation has shown the first hints of backing off its torrid pace of the past two years (Figure 2).
… THAT is all for now. Off to the day job…