Oct 6, 2016 - Bank of America says we're on track for a U.S. recession in 2017: BBG ... Here is the easiest way to descr
The BondBeat Thursday, October 06, 2016
See GP disclaimer HERE
In The News …
Fed's Fischer SAYS low neutral rate a sign of potential economic trouble: RTRS
German Factory Orders Surge as Domestic Demand Rebounds: BBG Global Bonds Retreat as Stimulus Outlook Upended a Second Time: BBG Bank of America says we're on track for a U.S. recession in 2017: BBG Germany plans to cut taxes by 6.3 billion euros a year: sources: RTRS
DB Mismarked 37 Deals Like Paschi’s, Audit Says: BBG Berlin pursues discreet talks with U.S. officials on Deutsche Bank: RTRS Quick (& clickable) Links:
Items Of Interest
What Happened Overnight
GP Documents:
Wed 10/5/2016 5:17 AM
Bloomy/EconODay Calendar
Morning. USTs are STABLE and the curve marginally FLATTER this morning on what looks to be decent volumes so far. Stability NOT limited TO USTs as there appears to be general CALM in FX, Commodities, global stocks and this has allowed for a bit more of a bid in global bonds. {WB} showing Gilts -2bps, Bunds -3bps (back down below ZERO) and generally speaking, more GREEN than POSITIONS UPDATES red on the screen here. There hasn’t been too much in the Taxable Bond Funds see inflows form of data so far. BBG reports German Factory Orders ‘SURGE’ as domestic DEMAND rebounds and that is fine. SMRA mgrs more defensive The main event this morning will be ECB mins (730a e.s.t.) StreetStuffWeekly 10.03.16 for any signs of confirmation that ECB is in fact trying to gather TAPER consensus. As far as US funDERmental input goes, we’ve got Challenger Job Cuts, Claims, and Consumer Comfort – in other words, not much. We’ll end Technicals 10.06.16 then by pointing out/mentioning FISCHER speech YEST. Reuters characterizes the speech as ‘Low NEUTRAL rate a sign of POTENTIAL econ trouble’ while BBG suggests Fischer talks of NEED for FISCAL help (NO specifics mentioned). NO specifics mentioned and chances of something AFTER elections? Maybe? Have linked thru TO Fischer speech. Meanwhile, this all was a theme YEST from GERMANY, too. See Reuters below on German plan to CUT taxes by 6bb EUR. Have a great start.
-
Econ Indicators 5yr & Under Index Spreads Daily Pivots
StreetStuff 10.06.16
What’s On OUR Minds Here is the easiest way to describe what and HOW it is we feel about rates at the moment.
This can apply to any/all markets and go ahead and infer whatever you’d like. To be clear, though, we’re NOT changing our tune. We are NOT bearish and we did/do not believe an ECB taper tantrum is in the offing. YET. ECBs most recent meeting minutes @ 730a COULD change this opinion and when and IF the facts change -as much as the prices have -- and we need to reconsider, we will. For NOW, though, we respect the price action and what it suggests. For somewhat MORE on this, and what we mean, please see this mornings TECHNICALS.pdf (you might recognize the visual of 30s from our note YESTERDAY. Gap is working on being filled and we’ll STILL watch with great interest 30s vs 2.46. Patience, as we’ve said all this week, REMAINS a virtue. Now, as far as the data goes -- on this mornings STUFF.pdf you’ll see almost all out with UPWARDLY revised GDP figures and most are STILL well above Atlanta Fed’s GDPNow (2.2% down from 3.8 in August … ahem). If only the prior FEW quarters were that good. We’d worry about the next few, too, but at the moment, this 2%+ growth figure looking to be reminiscent of one-hit wonder by The Knack - 'My Sharona' (1979). And so, we dig deep and turn up something supportive OF our more sour funDERmental opinion and this morning offer you this, from the National Association of Restaurants:
Now it’s not completely random that we happened upon this visual. We picked up this data point (released LAST week, HERE is source) from yesterday’s Breakfast With Dave “Dining out is out. A gauge of activity in the American restaurant sector showed the first contraction since December and hit its lowest since October 2012 ...Chart 1: Restaurant Performance Index -- National Association of Restaurants” ... But BEFORE Rosy talked of dining OUT as an economic indicator, he ALSO happened to mention that we’re all lookin for inflation in the wrong place. “Looking for inflation in all the wrong places. What should be noted is that energy comprises 7.1% of the consumer price index while food makes up a march larger 13.7% share … The world, it would seem, is awash with everything, and that includes dinner -- the Agriculture Department has pegged the size of the nation’s hog and pig herd on September 1st at 70.851 million heads, the largest on record for that time of year … Thanksgiving can’t come soon enough. But for bond bears, there remains more deflation than inflation risk ” Which brings us to THIS, which was living peacefully in the bowels of OUR BBG Launchpad:
Who’s hungry? We’ll quit while we’re behind as we await the ECBs meeting minutes. We will THEN continue along our countdown TO tomorrows NFP … And just in case you missed it -- and thought the visual WE lead with was WEAK -- here is how CitiFX guys are selling the idea: Market Commentary | 4 Oct 10:59 NFP Friday: Time for an “irrelevant downside miss? ...Below we note the “dots” for the initial print in September in the 19 instances from and including 1997 onwards. This “initial word” is important as we feel most people look back at what was the final number but it is the initial print that is the market driver at the time.
Make as much or little of THAT as you’d like and as always, let us know however we can help as you plan your NFP trades and trade your NFP plans. Regards Saul/Steve
Items of Interest EconoDay Economic Calendar (via BBG.com)
Bloomy’s Fed-speak Calendar October 6, 2016
GPs Key Econ Indicators August 25, 2016-> Our “Economic Graph Package” is used by some of our clients to include in their monthly or quarterly reports. We have most of the major economic indicators included to give an accurate snapshot of the economy. GPs 5yr & Under Summary September 28, 2016- > this is our chart package we call the “One to Five Year Daily”. It tracks agency bullet spreads to Treasuries, date to date, to compute the real maturity spread levels (in basis points) out to five years. We track agency callables against agency bullets and Treasuries. We compare equal maturity dates when tracking these spreads because the effective durations of callables are not stable. So over time we have a consistent methodology that we use to determine “value”. Please give us a call for more in depth explanation.
GPs Index Spread Summary September 22, 2016-> We use certain Merrill Lynch indices, which are described at the top of each graph, to try and determine optimal entry and exit points for each sector. Though the indices should have similar durations, they commonly don’t match precisely so we’ve included the green line (which should be read off from the right axis) to allow you to take the curve into account when looking at historical spread relationships. GPs Daily Pivots October 6, 2016 -> the pivot point is essentially a mechanism for analyzing the short-term supply and demand factors affecting the market. It has limited applications for long- term decision making. Professional futures floor traders, also known as locals, are the biggest proponents of the pivot technique. Scalpers, brokers, market makers, and other short-term traders also use the technique, while upstairs or longer-term traders occasionally look at the pivot for ideas of what the floor traders are doing. The pivot point is basically the weighted average price of the previous trading day, calculated as the average of the previous trading day’s high, low, and closing prices. It represents the major point of inflection each day. Unless there has been significant market news between the previous trading day’s close and the current trading day’s opening, locals often try to test the near term support, resistance, and pivot point. For example, many floor traders cover their shorts and go long into the pivot level if the market opens above the pivot point and starts to sell off. Well, it’s once again that time for information OVERLOAD and so we remind you … clicking up the StreetStuffWeekly.pdf will bring you to a few paged SUMMARY – a cliff notes version, if you will – of what some of the brightest minds and best SELLSIDE analysts are saying and thinking. WE have focused mostly on things directly impacting US RATES so you’ll find lots of specifics as well as economics AND EVEN a couple of the more notable equity thoughts. Just because. Here are OUR ‘cliff notes’ of what stood out this weekend and what you’ll find on the PDF WE’VE LINKED TO:
StreetStuffWeekly October 1, 2016 What you’ll find and WHY you’ll wanna point/click This weekend’s stuff is a bit light -- our summary and linkfest is only 26pgs as opposed to the 35+. IF you need more, HERE’S a link back to what we compiled and sent on THURSDAY. It contained latest (quarterly)thinking from Barclays. We brought forward a few of OUR fav chapters and note they are SELLING Gilts, buy USTs. Same trade as GSAM (actually INCREASING long US vs UK in 30s this weekend) while at same time is short US rates. they also have a report on PRODUCTIVITY “Aging matters (a little)…”. This weekend’s link leads with some updated/current thinking from the one of the dynamic duo -- David Ader -- who offers, “The Dovish Tilt to the FOMC in 2017” … Aside from agreeing in principle with him, served to KEEP us in the dark as we WONDER what exactly is going on with these two … There’s ALSO SOME about global TRADE -- Citigrouptranslates it into a more bullish lean as they view it as a ‘warning sign’ and via US Rates Weekly, “Oktoberfest rally … Given our bias to buy Treasuries on weakness, we will look for opportunities to get long ahead of payrolls, if we get the chance.” Speaking of PAYROLLS, given the weekend before ADP/NFP, you’ll also find more than a few coin-flips relating TO both. GS offers a very clear opinion of the ADP forecasting ability OF NFP, “...Pay attention to large surprises”. Otherwise, forget about it… Also in the FORGET ABOUT IT column, have a look at GS report on mortgages. Thinking about refinancing? Again? “...Mortgage rates have remained low throughout 2016 – below 3.7% since March, and below 3.6% since June – and there is evidence that
refi activity may be slowing down, as many of the most responsive borrowers have already refinanced…” Visual they offer reminds of what DB offered LAST week -- Google searches for recession? This weekend, GS has a look at decrease in internet search trends for REFI and correlates well with MBAs refi index. Just sayin. Click up and through for all this and some more. Make sure to check out GSs weekly stock jockey update (sell 10s buy S&P went from +1% to -1% -- a big weekly move) and note some of the visuals WE brought forward. What do YOU make of their ROTATION and CURRENT ACTIVITY INDEX? And don’t get me started as to thought process on corp buybacks. Or what Hatzius has to offer in his GLOBAL Econ Analysis where he ‘moves over another hump’ and talks of some of the bigger short-term risks, “… a small but growing risk that the US economy will overheat. To reduce this latter risk, Fed officials are likely to raise short-term interest rates by more than currently priced into the bond market, although the near-term path is likely to remain gradual.”
AND THERE’S MORE … MUCH, MUCH MORE
StreetStuff October 6, 2016 What you’ll find and WHY you’ll wanna point/click – aside from/along with GDP upward revisions – by and large – based on yesterday’s data (MS stands out as lone DOWNGRADE for Q3 – now 3.1 vs 3.3) BMOs closing comments, “Nearing the Limit … …The Fed released a working paper this week which attempts to explain the reasons U.S. economy has recently experienced persistently low real growth and interest rates. The authors use a general equilibrium model which incorporates demographic changes in the U.S. population, family composition, life expectancy, and labor market activity. The authors argue that demographic shifts can explain “essentially all of the permanent declines” in real growth and interest rates.” – ALSO SEE Figure 1 “Waning Supply … shows the expected monthly ECB public sector purchases and the estimated gross and net issuance for several of the larger countries in the Eurozone.” Citigroup’s OD on STEEPENING BIAS, “…One last administrative note is that we’ve raised our L-T conviction level on the 2s10s steepener back up to a “3” after daily momentum crossed in favor of further steepening at today’s close. That momentum cross suggests that the corrective flattening has run its course so we’re back to a conviction level that we feel is about as high as we can go in the central bank-ruled rates world. Similar momentum turns upward can be seen in the German and UK 2s10s curves as well, adding to our comfort in dialing back up the conviction on the 2s10s steepener.” Citi Global Equity QUARTERLY, “Still Tired Bulls … Equities Still The Yield Asset — Global equities trade on a dividend yield of 2.6%, well above global government bonds that yield just 0.5%. This high risk premium should offer equities some protection given any unexpected increase in bond yields…” MS on MID CAP BANKS, “C&I Lenders Could Feel the Pain; CRE Less So? Concerns over the sharp drop in C&I lending in the quarter are valid, with the slower growth driving several EPS cuts ahead of 3Q. However, CRE loan growth remains strong and credit spreads appear to be widening. In the quarter, SIVB could surprise to the upside on better credit quality.” Pioneer on “Bond Supply for Q4 2016 – More Demand than Supply” UBS, “Global Rates Strategy – October is looking spooky for USTs. Tactically, we turn neutral on curve and duration ahead of labor market report, money-market reform deadline and elections. We like being long 30-year BEIs. What does the rise in German bund yields mean for USTs? On Tuesday, US yields started to move higher on the back of taper
concerns in Europe. While tapering is not part of our views, we have highlighted that euroarea core yields look too low relative to fundamentals and markets are excessively dovish. As such a potential back up in EUR yields may push USTs up by 20bps at most. We have discussed this and related views in three recent notes: Euro-area yields: Too low any way you cut it , Can a bond sell-off derail markets and What could cause a US bond market selloff?
AND THERE’S MORE … MUCH, MUCH MORE
Technicals October 6, 2016 w/PIVS: 5s vs 99-14; 10s vs 98-05; 30s vs 96-09 Daily Pivots are SUPPORT What you’ll find and WHY you’ll wanna point/click: GP: levels to watch on 30s – GAP being filled (2.42-46), 200dMA (2.53) and BREXIT (2.56) BBG: 2s breaking 2016 downtrend and ABOVE 200dMA BNP: “The break of the December 2015 uptrend support has negated this expected bullish continuation move and triggered a short-term fall near 130 where we thought the bull trend was likely to resume…” CitiFX Weekly: “Halloween horrors to be followed by Christmas cheer? … If the extended levels of 1.10% in 2 year yields; 1.50-1.60% in 5 year yields; 2% in 10 year yields and 3% in 30 year yields were to be seen that would suggest an environment similar to the “taper tantrum” moves of 2013 (albeit less aggressive). The danger then, at least initially, is that the markets may view this as a “risk off” dynamic as any perceived shift in Central Bank “easiness” has not been well received by Equities and Local Markets/carry. Nonetheless, we would view this as a short term knee jerk reaction as broader indications for US Equity Markets (Weekly Roundup: US Equity Markets - Building blocks still climbing the wall of worry) and Local Markets (Weekly Roundup: Favorite long term charts for Q4, 2016) remain constructive in our view over the medium term.” CSFB: FLAT looking to SELL UPTICS (10s vs 130-22, 30s vs 166-24/30) and, “Chart of the Day: 10yr US yield spotlight remains on key support at 1.75/78% – the 38.2% retracement of the 2015/16 rally, “Brexit” yield high and 200-day average – which we would look to attempt to hold. A breakout through here would signal a more extended sell-off to target 1.89/90% next.” GS: LOOKING FOR 10s to HOLD – signs of a top – vs 1.75 and a BREAK “increases chances of a more complex corrective process; scope to reach 1.84”; in similar fashion, LOOKING FOR 30s to HOLD vs 2.50; USDJPY next big level 104.86 Kimble: “Bonds create large bearish wick (reversal pattern) at resistance” – and by BONDS he’s talking TLT
MMO for October 3, 2016
In The Press NOW:
Updated Oct. 5, 2016 8:06 p.m. ET
Fed’s Fischer Concerned About Low Natural Interest Rate Can have ‘major economic significance,’ vice chairman says In remarks prepared for delivery at a speech at the New York Fed, Mr. Fischer said ultralow rates may reflect more than just cyclical forces, and could be a sign of more deep-seated economic problems. Estimates of the natural rate have declined in the U.S. and in other advanced economies since the 1990s, Mr. Fischer said, citing research from his Fed colleagues. That decline “could be yet another indication that the economy’s growth potential may have dimmed considerably,” he said, calling it a “deeply concerning conjecture.”
Oct 5, 2016 11:54 am ET
Are Higher Yields a False Alarm Again? These days, the talk in the markets is of central banks backing off their stimulus efforts, and that's driving bond yields higher. But the higher rates won't last, one analyst says. …But Blake Gwinn, U.S. rates strategist at RBS Securities, says higher bond yields won’t have staying power. He says markets are used to central-bank stimulus so any time when the word taper comes up, “it hits the nerves,” and drives investors who held long positions to dial back. Updated Oct. 5, 2016 5:20 p.m. ET
Dividend Stocks Take a Hit Utility shares are suffering their longest losing streak since 2002 as investors shed holdings in income-producing sectors that look pricey after this year’s sharp runup. The moves underscore the sharp reversals in popular sectors as investors warily watch central banks.
Updated Oct. 5, 2016 1:53 p.m. ET
Understanding Deutsche Bank’s $47 Trillion Derivatives Book Adding to market concerns about Germany’s largest bank: Its exposure to derivatives and the large pool of hard-to-value assets that the bank holds on its books. Updated Oct. 5, 2016 3:46 p.m. ET
Global Government Bond Markets Under Renewed Selling Pressure Price declines driven by report showing solid expansion in the U.S. service industry Oct 5, 2016 4:03 pm ET
S&P: Foreign Corporate Cash Could Solve U.S. Infrastructure Woes Oct 5, 2016 9:45 am ET
Three Risks to the Global Financial System as Debt Hits Record Levels
An unprecedented era of ultralow interest rates and feeble growth has led to a record buildup in global debt levels. Here are three risks to the global financial system.
Oil Glut? Here Comes Some More! By CLIFFORD KRAUSS
Oil finds in Texas and Alaska come at a time when the industry is struggling with low prices and faces pressure to leave hydrocarbons in the ground.
7:02 p.m. EDT October 5, 2016
Will schizophrenic job market show good side? Economists will be looking for this year’s Jekyll-and-Hyde labor market to show its true face Friday when the government releases the September jobs report. They may not get their wish. The job market is being buffeted by so many crosscurrents -- including a shrinking pool of unemployed workers, a sluggish economy, uncertainty over the presidential election and even job-counting challenges – that the picture may remain fuzzy for at least several more months 5:03 a.m. EDT October 6, 2016
Ouch! ATM fees hit new record: Avg. of $4.57 per pop You might want to think twice before whipping out your ATM card, because fees for out-ofnetwork locations have hit a record average of $4.57, according to a new Bankrate.com survey.
\
German industry warns against ‘globalisation bashing’ A German industry chief has warned of the worldwide rise of “globalisation bashing” and urged political leaders to fight back and defend open societies and economies.
Back on form: Swiss deflation deepens again So near, and yet so far.
Portugal stuck in ‘vicious circle’ of low growth and structural problems Rating agency DBRS issues warning ahead of crucial decision on borrower status
Japan’s big banks boost US deposits
Shift comes as non-US banks seek alternative sources of dollar funding as CP market shrinks From The Blog-O-Sphere: Here you’ll find postings and research from the likes of Barry Ritholtz’s Big Picture, Pragmatic Capitalism, Kimble Charting and Zero Hedge - along with everything else we stumbled across that WE need to point out … The point of all this is to pass along things that strike us as interesting – even though they may NOT be our very own
__________________________________________________________________ See GP disclaimer HERE
