Old Mac’Donald’

Markets plodded along Tuesday, exhibiting a familiar sense of annoyed apprehension.

In simple terms: Anyone who’s managed to stay sane over the past several years is ready to turn the page on a number of fronts, but the “home stretch,” as Goldman called it, is proving to be quite arduous.

In some of his first public remarks since supporters besieged the Capitol last week, Donald Trump downplayed his role in the melee, claiming, among other things, that “the papers” and “the media” have “analyzed” his speech and concluded that it was “totally appropriate.”

Read more: The ‘Totally Appropriate’ Tail Risk

Trump’s penchant for eliciting incredulous laughter never ceases to amaze. There is absolutely no context in which last week’s events are amusing. But the fact that the president is able to stare down a media scrum and declare that upon careful “analysis,” “the papers” and the press have determined that one of the most inflammatory speeches in modern American history was “totally appropriate,” is such a mind-bending feat of reality denial that one struggles with how to react if not by emitting a derisive chuckle.

There will apparently be no resignation and it certainly didn’t sound as though any manner of conciliatory speech is forthcoming from the outgoing president. He will almost surely be impeached a second time.

Markets are just waiting this out. There’s a compelling story to tell in rates, and it got more interesting Tuesday, when a solid 10-year reopening put a lid on the Treasury selloff — at least for an afternoon.

“The Treasury market was on script today; selling off into a strong 10-year auction, only to rally back for a round trip of 5 bp from the yield peaks,” BMO’s Ian Lyngen and Ben Jeffery said. “It’s very tempting to suggest this will mark the upper bound for the trading range in 10s for the time being, even if prudence suggests reserving judgment until… the CPI response, and the long-bond takedown have all been dutifully absorbed.”

Remember, the CPI print matters. And so does Friday’s retail sales data. So far, the apparent impact of the winter COVID wave (e.g., in the disappointing December jobs report) has proven insufficient to arrest the rise in yields — the realization of the blue sweep and the associated likelihood of more stimulus is too strong a narrative. Wednesday’s 30-year sale and the balance of this week’s data will see the tug of war continue.

The same reflationary, pro-cyclical lean manifesting in rising yields and a steeper curve continues to drive a rotation in equities. The Russell 2000 has now recouped its underperformance to the S&P since the pandemic — and then some (figure below).

“Since the start of the year US bonds have been under pressure as the ‘reflationary’ theme has gained momentum,” Goldman wrote. “Despite the concerning increase of new COVID-19 infections, the Democratic win in the Georgia runoffs, [and] the OPEC oil cuts provided solid support for more rotation across and within assets.”

How many times can we say the same thing?

In remarks cited by Bloomberg Tuesday, CFRA’s Sam Stovall figured out a creative way to encapsulate it all: “I wrap up the market’s concerns into an easy-to-remember acronym — EIEIO — which stands for EPS-Impeachment-Energy Prices-Interest Rates-Overvaluation.”

We’re going with nursery rhymes now. Which is fine.



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