A Mission From God

US equities were dutifully higher to kick off a week poised to offer some incremental information on the state of the world’s largest economy.

You’d be remiss not to note the simultaneous rally in Treasurys. Bloomberg’s Edward Bolingbroke flagged 20k 10-year note contracts traded over a three-minute window, as Friday’s highs were breached. 10s were at ~1.61% into the US afternoon.

Commenting on what it’s fair to describe as a sideways drift considering the apparent return of macro vol, BMO’s Ian Lyngen and Ben Jeffery wrote that although a “fifteen basis point range over the course of two trading weeks isn’t especially narrow on an outright basis, the reluctance of US rates to reprice in either direction in the wake of the disappointing jobs report and subsequent spike in CPI speaks to an implicit degree of balance between competing macro narratives at the moment.”

Over the weekend, I characterized the current situation as a waiting game. Rates are waiting on the macro to “load,” so to speak. April’s disappointing NFP headline and blockbuster CPI print effectively offset, resulting in a stalemate of sorts, at least when it comes to top-tier data.

“As unsatisfying as it might be, the reality is that the passage of time is the missing component for investors to have a better sense of the appropriate range for Treasury yields,” Lyngen and Jeffery went on to say.

“If the rise in inflation expectations continues, and a significant overshoot occurs, it could be a key factor in translating an initially transitory rise in inflation into a more sustained increase,” Deutsche Bank’s Brett Ryan said Monday, referencing the surge in expectations that accompanied the preliminary read on University of Michigan sentiment for May.

The final survey for this month is due later this week. “At this point, the re-anchoring of inflation expectations around earlier levels is a welcome development for Fed officials who have been concerned that these expectations had drifted too low,” Ryan added. “Moreover, the inflation expectations series is highly prone to revision, so some of this latest spike up could be revised away.”

Remember: We’re coming off a week that featured the largest drop in 10-year breakevens since September.

“The stalemate in the bund and Treasury markets, and the lack of new economic news, has left markets looking elsewhere for direction, which means everyone talks crypto,” SocGen’s Kit Juckes quipped.

Actually, it wasn’t a quip. It’s true. And thanks to the most harrowing week in recent memory for the crypto crowd and a CoinDesk conference that featured an interview with Ray Dalio, there was plenty to talk about.

The price action was characteristically absurd. After diving nearly 20% Sunday amid more disconcerting headlines, Bitcoin jumped double-digits Monday on track for its biggest gain in months. By the time you read this, it may be down 20%, up 20% or anywhere in-between.

Commenting on last Wednesday’s brutal intraday collapse, JPMorgan’s Nikolaos Panigirtzoglou said CTAs “undoubtedly” contributed to the action.

“We argued previously that the failure of Bitcoin to break above the $60,000 threshold would see momentum signals turn mechanically more bearish and induce further position unwinds,” he wrote, in a new note, calling that “likely a significant factor, with the shorter-term momentum signals turning short early [last] week for the first time in a year.”

Even as prices recovered, momentum signals “remain problematic as a signal,” Panigirtzoglou went on to suggest, before noting that “publicly listed Bitcoin funds continue to suffer from outflows,” which sum to more than a half-billion over five weeks.

In an interview with Goldman (appropriately), Mike Novogratz conceded “there’s still a lot of volatility [in crypto] so people will wash in and out.” And yet, he reminded skeptics (like me) that “a core group of crypto people see this as—and I quote the Blues Brothers here —’a mission from god.'”

Those folks “will never sell,” Novogratz said. “Because of that, Bitcoin and Ether can’t go to zero.”