Former trader and current man sitting at the desk across from you with a disgusted look on his face, Richard Breslow, is out with his daily missive.
Today’s note comes on the heels of yesterday’s piece in which Breslow admitted that “there’s a serious amount of scary out there.” Richard has been pounding the table for weeks on the idea that although DM central bankers are clearly demonstrating their desire to normalize policy, markets haven’t been willing to listen (of course one might just call that markets calling central bankers’ collective bluff).
So you can imagine how thrilled he was this morning to see the dollar and yields on the move and better still, everyone talking about it. Basically, everyone is waking up to his general theory about coordinated tightening and the repricing higher of rate hike expectations just further underscores that point.
One interesting thing in what you’ll read below is what Breslow says about the curve. To wit:
Two and five- year Treasury yields are clearly breaking higher. Futures are repricing higher rate hike expectations on what seems like a daily basis. The tens are back from the grave but still have some work to do.
That (i.e. flattening) would seem to suggest that markets are taking central bankers more seriously than they’re taking policymakers. Here’s more…
Via Bloomberg
We’ve got a lot of assets on the move. Including big ticket items like the dollar, bonds and oil. If only we still had the pits so we could listen to, as well as watch the screens, for that old time thrill of mayhem. But we can’t really analyze what’s happening and make forecasts without remembering that while suddenly on everyone’s radar screens, these aren’t moves that sprung from nowhere only this week. They’ve actually been developing for three weeks, which in trading is a decent amount of time, and, until now, were largely ignored. Which to a lot of observers makes them seem even more dramatic than their impressive performance deserves.
- For weeks now we’ve received, in almost scripted coordination, speeches from global central bankers that have been hawkish or neutral, with virtually zero despondency. The reasons for that include the fact that there has been a realization that waiting for the whites of inflation’s eyes is no longer seen as a smart strategy
- Claiming data dependency has been a comfortable crutch. But you won’t affect future expectations without explicitly acknowledging progress already made and momentum perceived. Inflationary expectations are a lot about what perceptions are rattling around in your head. Even if you would like to believe you’re the embodiment of rational man
- What we are witnessing is a new experiment in behavioral economics being given its road test. Proving, once again, that some of the best academic theories have come upon by using common street sense rather than divine inspiration. “Where are you going” is being replaced with “how’s it been going?”
- As I look at the recent moves, especially the flattening yield curve, I can’t help but think that the credibility race is definitely being won by the central bankers. And rather badly lost by our other policy makers. Two and five- year Treasury yields are clearly breaking higher. Futures are repricing higher rate hike expectations on what seems like a daily basis. The tens are back from the grave but still have some work to do. That’s all a sign of acceptance of looming rate moves coupled with the depressing expectation that some politician is going to make a bad mistake down the road. As far as dollar strength is concerned, it’s no longer quite as clear that everyone else comes to the party with thoroughly clean hands
- The goal posts have definitely been moved. You can’t trade with the constant fear of some bad unknown affecting your decision making. And central bankers are coming to the realization that unending talk about global headwinds, while real, has been unduly playing with their heads. The improvement in global trade has become the point, not the threats to it
