“The aim of argument, or of discussion, should not be victory but progress.” Karl Popper
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For all intents and purposes, it is. A bit of supply related distortion, but the spread doesn’t falsify the main driver.
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Well played. Agreed on bonds. Here is my UST 10yr futures multiple timeframe screen, looks great on all of them
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In case any of my 3 followers care (93% of which seem to be women from Asia)... Strong internal line on 10yr futures here, we're at the cusp
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The fact the unemployment rate is rising from 50 year lows and they still have a policy setting geared to fight inflation running at a multiple of their target when it's now running less than 1% above and falling?
What in this report makes one think they shouldn't?
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No stress till this picks up though. It has fallen with fin conditions… looking for a turn in inflation swaps as an indicator that fin conditions have overshot
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That's a YoY change. The actual real yield has been flat for 3 months. The YoY will be crashing down towards 0 due to base effects alone next year. Nominal
2s are now below Fed Funds, looks to me the market is starting to tell the Fed the job is done. It's a long time till Feb..
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BBG consensus is at 7.9%, and the fixings (reported below by MS) suggest a downside surprise to that... Let's see whether the market or the Cleveland Fed called it better
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Spot 5yr US real rates trading above the 1yr fwds has been a decent indicator of them topping out in the past
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Is it worth pointing out that on a 12m basis, the nominal rate is now significantly higher than the inflation swap (expected positive real rate). I know we want to see positive Fed Funds deflated by core CPI, but the real rates further out the curve actually matter more imo.
tbh traders are not really challenging this. Look at the Eurodollar strip. Even traders have been duped. There is only the smallest probability of a cutting cycle priced in there....
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Inflation swaps continue to be driven by BCOM YoY. It's down from +50% 5 months ago to +10% YoY today, and base effects alone in the next 6 months would justify it falling to -20%. This would see swaps fall way below Fed target consistent levels.
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and obvs, the terminal rate 8 months down the line is priced to trounce inflation expectations deeply. Something will break, and then many will call it unpredictable. Don't be a perma anything.
Last time fed funds rose above the 1yr inflation rate we got.. mayhem. When the funding rate is higher than the prospective inflation lvl, you need real growth to justify borrowing. We gonna that?
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Charlie Munger knows piped.video/watch?v=v5UCmsXp…
Household bill used to be 1000 pounds for gas + elec. Just been offered to fix for an estimate 6500. And they call it… protection!
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EURUSD falling beneath it's pre ECB 50bps surprise level, as the German and EZ comp PMIs crack 50. The market focus continues to shift away from inflation/policy and towards the growth aftermath
Value peaked end of March, coincident with the top in inflation breaks. Since then, fair to say earnings concerns have been seeping in. But it’s early doors.
ALT US value and 5yr Breaks
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Eurodollars priced to peak in dec and give back all the tightening from here over the next 2 years. Still too slow. Still too high.
Here is what is priced to the US curve. Posterity will more likely see a needle than this stabilisation at a higher rate. The Fed will hike as much in the next 2 months as it did in the whole of 2017 (or 2018). We’re in a boom bust environment.
