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Holiday Road.

"Well, that's nothing to be proud of, Rusty.... 50 yaaaards."

We’re headed into the holiday weekend in the U.S., a weekend during which Americans will all get drunk and try to forget about the fact that President Clark Griswold is about to drive the country completely off a desert road, only to turn around and brag to Rusty about how far off track he’s gotten us.

“Wow Mr. President you must have jumped this thing about 50 yards.”

“Well, that’s nothing to be proud of, Rusty…. 50 yaaaards.”


Gary Cohn is trying his best to make everyone believe that tax reform is still alive and it now appears that Trump has accepted the fact that holding the government hostage in exchange for border wall money might not be a great idea.

Still, the angst is palpable.

The jobs report obviously sucked all kinds of ass…


…although if you believe the ISM’s gauge of factory employment, there’s some #MAGA going on:


Stocks did rise as consumer sentiment and manufacturing exuberance were enough to offset the employment report (think: just right for equities with the NFP print slowing the Fed down and the rest of the data suggesting the economy isn’t going off a cliff).

The Nasdaq closed at a record high (I’m going to assume you don’t need a chart to know what that looks like). Ultimately it was all green for the week at the index level:


Yields managed to make it out of the week largely unchanged, which was a small miracle given they had to contend with North Korea, Trump, debt ceiling worries, and largely uninspiring data. We did hit a YTD low on 10Y yields at one point.


Here’s the 2s10s – no explanation necessary:


An interesting aside, that would seem to suggest defaults are set to rise:


(Deutsche Bank)

There’s also this:



Here’s some interesting color on that from Andrew Cinko:

10-year Treasuries yield less than the S&P 500’s forward dividend yield, reports Sid Verma. That’s usually a sign a stock selloff is bottoming — except equities are at record highs. What gives?  I scoured through Bloomberg forward dividend yield data going back to 2006 to find a period that resembles today’s conditions, and found just one look-a-like: August 2015. The crossover back then came just before the S&P 500 experienced a 13% correction to hit a low in February 2016. That occurred, of course, amid concerns about China’s growth. Today’s concern is about a lack of inflation pressure. Is it possible Goldilocks economic conditions are too much of a good thing?

The ECB is either day trading the euro (which I guess they kinda always are by definition), completely confused, or else just trying to baffle everyone with bullshit because a couple of hours after Nowotny implored traders to avoid “over-interpreting or dramatizing” the currency’s rapid appreciation, some “euro-area officials familiar with the matter” were out saying that ECB policy makers may not be ready to finalize their decision on next year’s QE until December.

Probably not coincidentally, that latter bit hit just minutes after the poor jobs report in the U.S., and so the knee-jerk higher in EURUSD quickly reversed itself:


In case you think this doesn’t have immediate knock-on effects for equities, have a look at the DAX and the EuroStoxx responding in real-time (dip on the euro spike, spike on the euro dip):


Ultimately, European shares closed green and I can assure you everyone was happy to be done with this crazy shit for a couple of days.

The MSCI China ETF was up for the seventh week in eight…


… and you’re reminded that August marked the eighth consecutive monthly gain for the index, something that’s only happened two other times in history.

More broadly, EM equities headed for a third weekly gain, as the lackluster NFP print seemed to lend credence to the notion that the Fed will be able to move slowly at best on normalization:


Also worth noting: implied vol. on the EM ETF is well on its way to erasing the geopolitics-driven August double-spike:


And depending on your definition of “bargain”, EM is still relatively cheap:



Just pray the dollar doesn’t decide to start rising and/or that the Fed doesn’t decide to simply look right past the data on the way to not only moving ahead with balance sheet normalization but also squeezing in another hike this year.

We’ll close on a positive note courtesy of Bloomberg’s David Wilson:

Could this be the end of the beginning, rather than the beginning of the end? The question comes to mind after looking at S&P 500 total returns for the past 18 months. There was only one down month during that period: last October, when pre-election jitters weighed on stocks. August produced a 0.31% return. The last time the S&P 500 rewarded investors so consistently was December 1994-June 1996, which also had a single month (October 1995) with a negative return. The period ended as an Internet-driven bubble in stocks was starting to inflate. So are we looking at the second coming of the ’90s? Who knows? Even so, the possibility is worth considering.

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