Abrupt Bond Selloff Sparks Mayhem
Things took a dramatic turn on Thursday, as a rapidly escalating US bond selloff undercut domestic equities, negating the good vibes engendered by Jerome Powell's repudiation of market speculation around even larger rate hike increments from the Fed.
Treasury yields surged on a combination of factors, including a record four-quarter increase in unit labor costs, which underscored fears of the very wage-price spiral Powell said the Fed doesn't yet see evidence of.
At the same time, it's likely
Apparently there is some chatter that Putin is upping the anti to more directly threaten the use of nuclear weapons. That may explain some of the buying in the short end which is forcing specs out of curve flatteners.
No. For one thing, two-year yields are 12bps higher. There’s selling in the short-end, not buying, it’s just not as pronounced as it is at the long-end. Also, the nuclear war trade would be bullish for the US long-end, not bearish. Nobody hears “nuclear drills” and thinks “sell the safest asset on Earth.”
Perhaps. But flight from fear buying most often appears in bills. But each case is unique.
I’d suggest you don’t listen to “chatter” unless it comes directly from real desks executing real trades.
Correct.
Thanks for the wise advice folks.
In my view earnings reports are the best view on “Unit Labor Costs”. So far corps have handled them pretty well imo. Doesn’t mean ti will not be an issue but corp mgmts are paid to deal with “issues”. I am not sure the employment picture will be static in the next year.
Smokey this is not Nam, this is bowling, there are rules. We are entering a world of pain.
Unless I am mistaken, I heard Powell day “long way from neutral” and perhaps even “very long way from neutral” yesterday during his presser. Anyone else catch that? Or was I daydreaming.
Found it in the transcript: “You know, the point is we’re a very long way away from neutral now.”
In hindsight yesterday sure looks like a dead cat bounce for US equities. Mark it zero Smokey!
Anyone who doesn’t believe that all US markets flow directly by Fed policy, and only Fed policy, hasn’t been paying attention for the past 4 years.
Worst pandemic in over 100 years? No problem, the Fed will dump money into the economy and look at the massive gains in the stock market, housing, commodities, crypto, and used cars!
Historic inflation out of control? No problem, QT will reverse all gains made and not sold.
Anyone willing to bet things look up as soon as QE is announced again?
Minor point, but there was an actual shortage of cars available to buy. But you’re right on all the other points.
When everyone has cheap money there is a shortage of everything.