pebblewriter

Tag: 10Y

  • CPI Hotter Than Expected

    February headline CPI came in at 0.4% versus 0.3% expected (and January.) Core CPI registered a 0.4% rise versus .03% forecast and 0.4% prior. YoY, headline was up 3.15%, up from 3.09% in January and a slight beat of the 3.1% expected, while core rose 3.8%, down from 3.9% in January.

    Shelter and gas price increases were responsible for 60% of the rise in February.

    This is in keeping with our Gas v CPI model which shows a slight uptick in MoM pricing in the midst of a YoY decline.

    The short-volatility algos were busy this morning, with VIX diving more than 5% in minutes to back below the 200-DMA.

    Futures, which might have been expected to tumble on the expectation of further delays to FOMC rate cuts, rallied instead. continued for members… (more…)

  • Update on the USDJPY: Dec 19, 2023

    In a move that surprised no one, the BoJ left their monetary policy unchanged unhinged. The policy statement still reflects the looney tunes, magical thinking that has always epitomized their decisions: they’ll raise rates when inflation reaches 2% – even though inflation is well above 2% and has been for over a year. Annualizing the past quarter, CPI is running at 5.4%.  Yet, the BoJ is holding short term rates at -0.10% and the 10Y at 0%.  Ultra-low interest rates have exacerbated the inflation problem for consumers, as the yen continues to hover near 30+ year lows – driving food and energy prices even higher.

    However, increasingly squeezed consumers remain at the bottom of the BoJ’s priority list, along with Debt:GDP – currently around 255%. At the top of the list: the Nikkei 225 stock index – hovering near all-time highs.

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  • OPEX Strikes Again

    Futures are up sharply… …as VIX is being crushed in order to provide cover for about $2 trillion in options expiring today.

    We’ve been seeing this all week, with multiple downturns reversed by late-session assaults on VIX even as earnings and economic data have argued for lower stock prices. Chase this rally at your own peril.

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  • A Moment of Truth for the Bond Market

    The Fed is supposedly reducing its “involvement” in the bond market. So, will they really sit on their hands now that the 10Y is testing the top of a channel dating back over 30 years?

    The charts suggest that if today’s high is taken out, the 10Y could easily reach 3.2%.If it reverses instead, stocks will be in for a world of hurt…

  • We’re All Canaries

    It’s surreal, watching our “leaders” debate how many deaths are acceptable and whether workers and children should be sent back into harm’s way.  Only a few weeks ago, we all agreed upon the need to flatten the pandemic’s curve so we could prevent a surge from overwhelming our medical system. Now, the debate is about flattening the soaring jobless claims and preventing the country from falling into a depression.

    I wish I knew the answer. I don’t. But, I’m fairly certain that if we emphasize the economy to the exclusion of medical issues, it would all be for nought – especially for the dead.  As the country reopens and COVID-19 cases and deaths resume their rise, we’re all canaries in the coal mine.

    Futures are off sharply this morning and appear likely to reach our next downside target either today or tomorrow.

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  • Wuhan Coronavirus: Still Here

    In a stunning demonstration of the extent to which algos control the market, ES soared 56.50 points after the World Health Organization declared the Wuhan coronavirus a public health emergency of international concern.

    While it’s true the press conference felt more like a China tourism promo, the declaration in no way reduced the risk the virus poses. Nor did it reduce the potential economic risk or stock market downside.

    ES came to its senses after the close, reversing at its SMA10 and dropping back through its SMA20. If today weren’t the last day in January, a month clinging to a positive return for posterity’s sake, we would have seen the next leg down already.Meanwhile, we have scads of economic data coming out at 8:30 and earnings galore to digest.

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  • FOMC: What Elephant?

    Over the last 20 years, we’ve seen two yield curve (2s10s) inversions: essentially all of 2000 and Dec 2005-May 2007.  The inversions themselves posed no issues for equity markets.  It was the dramatic unwinding of those inversions that produced crashes.Eight months ago, we almost had another.  2s10s had fallen to a trend line connecting those two previous curve lows. Instead of bouncing, however, 2s10s continued falling — reaching a low of .18 on Aug 27.

    Unfortunately, the optics of this approach to an inversion are troublesome.  It is commonly believed that inversions presage recessions.  So, the brain trust in the Eccles Building has a little tightrope walking to do.

    They need to increase the short end of the curve to stave off (understated) inflation and build some cushion for the next financial calamity.  But, to avoid an inversion, they must scale back their intervention in the 10Y — at least enough so it can keep pace with the rapidly rising 2Y.

    Eagle-eyed observers might note that both recently out above the trend line connecting previous highs. Not so coincidentally, this occurred as the above-referenced trend line connecting the 2s10s lows was breached and equities began their Jan-Feb swoon.Can the Fed keep the plates spinning a little longer?  Without question.  Especially if Powell is successful in convincing investors algos that the economy is strong but there is no wage pressure and inflation poses no real threat.

    Should that narrative fail, however, the spectre of higher rates alongside soaring debt levels might finally awaken equity and bond investors to the elephant in the room.

     *  *  *

    So far, the damage resulting from Friday’s channel breakdown has been contained to the August highs.  But, still ahead, EIA inventory reports and the FOMC statement and press conference.

    continued for members… (more…)