Then, on Wednesday, the 2s10s inverted, sparking a recession cacophony which will surely reach the ears of the president, leading to shrill cries for rate cuts. (God forbid #Recession starts trending on Twitter and he sees it.)
We wrote those mildly humorous lines on Wednesday morning, amid yet another ferocious bond rally that pushed 30-year yields in the US to record lows and ushered in the only yield curve inversion that ever makes headlines outside of financial circles – the 2s10s.
Fast forward to Wednesday afternoon, and sure enough, #TrumpRecession was trending. (AOC was tweeting about it, which must have been insult to injury for the White House.)
By the time the closing bell sounded on Wall Street, it was another bloodbath for US stocks. The Dow plunged 800 points as investors and traders anguished about a potential recession and debated the extent to which relentless bull-flattening proves Jerome Powell’s Fed is woefully behind the curve – figuratively and literally.
The UK 2s10s inverted as well and lackluster data out of China and Germany drew a bright, red line under growth concerns. So manic was the bond rally on Wednesday morning that ultra-long futures tripped the extended hours circuit breaker.
The selloff on Wall Street must have been a bitter pill for Trump to swallow. After all, it was just Tuesday when the White House delayed tariffs on some key consumer items until December in order to calm markets, which had sold off sharply to start the week in a repeat of the previous Monday’s harrowing plunge.
But alas, it looks as though the president might have pushed the envelope too far. The 2s10s genie is out of the bottle, and as alluded to above, that’s one yield curve inversion that tends to make national headlines even outside of market-focused media outlets.
Wednesday marked the seventh session since the July FOMC meeting that the S&P has moved 1% or more in either direction.
It was the second-worst day of the year for the benchmark and it came just barely over a week after the gauge’s worst session.
Energy and financials were summarily routed. In fact, it was the worst day for financials since early December.
Treasurys held gains and the “rage” bull-flattener was the order of the day. The 2s10s and the 5s30s were flatter by some 3bp and 4bp, respectively. 10-year yields ended around 1.58%, with yields lower by more than 13bps.
The VIX obviously spiked and Wednesday was the fourth-worst day of the year for big-cap tech.
Wilbur Ross and Peter Navarro tried to do some damage control on Wednesday morning. Ross was unconvincing. Peter made things worse.
39 minutes before the closing bell, Trump lost it. “We are winning, big time, against China. China is not our problem, though Hong Kong is not helping”, the president tweeted, before getting to the heart of the issue.
“Our problem is with the Fed. Raised too much & too fast. Now too slow to cut”, Trump said.
Then, he delivered the grand finale – the coup de covfefe, if you will. Take it away, sir:
Spread is way too much as other countries say THANK YOU to clueless Jay Powell and the Federal Reserve. Germany, and many others, are playing the game! CRAZY INVERTED YIELD CURVE! We should easily be reaping big Rewards & Gains, but the Fed is holding us back.
We will Win!
Maybe. But not on Wednesday, a day when #TrumpRecession was trending on the president’s favorite social media outlet and a day when his favorite job performance barometer suffered its worst loss of 2019.
Nothing further.
Trump and his economic team are clueless. This is going to end badly for lots of investors and the McConnell-led Republican Party, which sold its soul to the devil in 2016 and richly deserves to die.
Well done
How long will it take for trump’s dumbass base to realize they have less and less money in their savings accts, and then who will they all blame?
Gordon Gray, director of fiscal policy at the center-right American Action Forum, speculated that Trump “is anxious to deflect any blame on this front” and that Powell is a convenient target.
“There is no coherence to the president’s approach to tariffs — on the one hand Americans aren’t paying them, yet on the other, they should be spared from the harm at Christmas,” Gray said. “Honestly, if the administration could just pick one analytical framework and stick to it, no matter how flawed, that would at least improve how market actors perceive the administration’s trade actions.”
“Honestly, if the administration could just pick one analytical framework and stick to it, no matter how flawed, that would at least improve how market actors perceive the administration’s trade actions.”
Well, no, “market actors” are smarter than that. The only people Trump et al are trying to kid are his under-educated, ill-informed base. Those market actors have known for some time that no matter your analytical framework, the RESULTS of tariffs are not good and will blow back in the faces of the US.
Counter to Trump’s statement that trade wars are easy to win, with China they are not, and we are experiencing it the hard way.
The scary thing is that Markets are just beginning to realize that trump is full of shit.
Well he is tweeting non stop now, reading them i almost feel pity for him. He is trying in his mind to make the markets go up. Go to sleep donnie, go to sleep, if Melania is there ask her to make you a warm cup of milk, and that’s a big if.
Sorry, no pity for him. I don’t want another crushing recession, but the only saving grace would be watching him blame the Fed chair he handpicked (I have all the best people!).
Bawhahahahw
Mnuchin has privately recommended Powell to President Donald Trump, according to one adviser close to the administration.
The people familiar with the process indicated that Mnuchin, who knows Powell well, feels comfortable with him and feels that he is a safe pick over whom Mnuchin can exert some measure of influence.
“Today is an important milestone on the path to restoring economic opportunity to the American people,” Trump said with Powell standing to his right and the prospective chairman’s family nearby. The president said the Fed requires “strong, sound and steady leadership” and Powell “will provide exactly that type of leadership.”
Yet aAother respectable person (Powell) gets humiliated by Trump
Fed cuts interest rates 25 basis points 9-29-98
Published: Sept 29, 1998
On the news, financial markets instantly recoiled as the blue-chip Dow Jones Industrial Average ($DJ) DJIA, -3.05% dropped 80 points on disappointment that the Fed had not lowered the fed funds rate 50 basis points. But the market made back most of those losses and closed down 28.32 points. .
Bond prices rebounded on the long end of the yield curve, but fell in the middle, flattening an already scrunched curve. The price of the 30-year Treasury bond soared 24/32, bringing the yield back to 5.098 percent. See Most observers said that means bond investors expect yet another interest rate cut when the FOMC meets in November.
Federal chief Alan Greenspan “has not expended his ammunition,” Kellner said. Ryding said the Fed could move again at the Nov. 17 meeting. “Now that the Fed’s in play, the economic numbers will become more important” in determining the timing and scope of the next move.
Three months ago, the FOMC was leaning toward raising rates, but that was before Russia defaulted on its debt obligations and nervous investors began pulling their capital out of any investment riskier than a Treasury bond.
Greenspan set the stage for a rate cut with a speech in California on Sept. 4, when he warned that the United States couldn’t remain “an oasis of prosperity.” (See related story.) He seemed even more committed last week when he told senators that quick action was needed to restore global confidence. (See related story.)
https://www.marketwatch.com/story/fed-cuts-interest-rates-25-basis-points-9-29-98
Let’s go down another thousand points and Bluto will fold like a Walmart tent on Denali.
This is all fine, but consider if Fed cracks + cuts big AND there’s a significant de-escalation in the trade war, what would stocks do? Rip +10%, possibly. What’s the probability of that?
The more SP50 falls, the more anxious Trump gets to make a deal and a rally. The closer we get to elections, the more anxious Trump will get.
His tool #1 is to beat on the Fed. Which we’re seeing. It will succeed at some point.
His #2 tool is to court some conciiliatory action from China. So far it seems like Trump is incapable of courtship beyond the “grab them by the pussy” type. When China makes an overture, the US heats up its rhetoric. China: “we hope US meets us halfway”. US: “any deal has to be on our terms, and by the way we’re now bringing Hong Kong into the mix just like we brought Huawei”. It also seems you can’t actually negotiate complex international understandings through Twitter. Still, Trump’s style is to yell loudly and then back off. Iran missile strike cancelled, tariffs deferred, etc. Perhaps the two countries will stumble into something positive.
So I’d think “Rip Up” is at least a 10-15% probability now.
I think that Rip-Up probability is likely to rise in coming months. Unless and until we get dramatic negative econ data along the “he’s dead, Jim!” line. I don’t think negative/inverted bond yields alone kill hope so dead that traders won’t react to big cut+de-escalate.
I also think that Rip-Up probability then declines into the election. Unless the Democratic nominee comes off as much worse (from China’s perspective) than Trump.
Whatever your base case, positioning has to protect against “Rip Up”.