April 15. Tim-BERRRRRR!!!!
April 14. Retail Sales…the report 6 months ago in October was a doozy
–It was a quiet day on Monday in interest rates. Towards the end of day treasury prices firmed to the highs as the possibility of default by Greece begins to look likely.
–Retail Sales today, expected +1.1% with Core +0.6. PPR expected +0.2 with Core +0.1. Six months ago, the Retail Sales report was released on October 15, the day that yields crashed with Jamie Dimon recently referring to the event as a six or seven standard deviation move. Colleague John Brady posted a speech yesterday given by the NY Fed’s Simon Potter that discusses this day’s move in the context of high frequency trading, regulation, and liquidity…
http://www.newyorkfed.org/newsevents/speeches/2015/pot150413.html
Is it ironic that this crazy session, which featured 50 bp moves in greens and blues, was on the retail sales release, and that Potter spoke about it right in front of today’s data?
–There are a couple of other large, long term issues that are occurring as well. First, there is a report by the NACM Credit Mgrs Index (summarized on ZH, http://www.zerohedge.com/news/2015-04-13/unseen-recession-shocker-crushing-economy-revealed-credit-rejections-soar-most-ever ) which notes a severe decline in credit conditions. “According to the CMI, the Rejections of Credit Applications just crashed the most ever, surpassing even the credit crunch at the peak of the Lehman crisis.” I looked at the last Fed Sr Loan Officer Survey from January which noted generally stable conditions, but had this little warning at the end: “…modest net fractions of domestic and foreign banks indicated that they expected the credit performance of syndicated leveraged loans to deteriorate this year, and about one-third of the banks that originate subprime auto loans expected delinquency and charge-off rates to increase in 2015.” The issue of credit quality is certain to become a hot topic for the rest of the year, as Corp Debt is at record levels and the amount of “covenant lite” issuance soars as a % of total.
–The other issue along the same lines is the spin off of GE Capital and the desire to lose the SIFI (Systemically Important Financial Institution) designation. GE Cap is a huge issuer of debt (accounts for 2% of all outstanding IG debt) and according to a piece in ZH will not issue long term paper for five years. If it was a SIFI and is now curtailing its operations, it should have a further negative impact on credit conditions and availability…More on this later
April 13. Dollar strength across the board; China’s trade data crushes Aussie
–China’s March exports were reported at a decline of 14.6%, causing a sharp drop in Aussie to near new lows just above 75 cents. Imports were down 12.3%. (Remember when the deteriorating US trade data associated with surging imports was considered ‘good’ because it reflected US demand?) The World Bank also cut 2015 growth forecasts for developing Asia and China. I recently read that Stanley Druckenmiller watches signs of central bank liquidity measures more than anything else when it comes to equities, and what is clearly negative economic news doesn’t seem to be holding down Chinese shares, with both Shanghai Comp and Hang Seng up over 2%.
–It’s not just Aussie testing new lows against the dollar, GBP is at a new low and EUR is also testing the lows made in mid March. The stronger dollar carries risks of an emerging market crisis but for now there seems to be little concern as implied vols continue to go lower in many asset classes. VIX closed Friday at a new low for the year 12.6. Ten year treasury futures vol is under 5% for May and just above for June, while FV vol hovers just above 3%.
–While Friday’s trade in rates was quiet, there was a bias for a flatter curve with red/gold euro$ pack spread settling down 2.25 bps at 116 (reds -1.375 and gold +0.875).
–I’ve tried this idea before, and it was a miserable failure, however, at these levels it’s worth another try. Short the Nikkei… Japan was the first to engage in massive QE to weaken the yen and boost exports to grow its economy. But now the ECB has employed the same strategy; the yen has strengthened against the euro and it seems reasonable to expected EZ products to win back share from Japan. Additionally, business leaders in Japan are openly questioning QE effectiveness, which may in fact cause a decline in accommodation. And finally there’s this: A little over four years ago, a week before the 2011 Tohoku earthquake and tsunami, 50 melon-headed whales were found beached in Ibaraki Prefecture, only about 100 kilometers (62 miles) from the earthquake’s epicenter.
Now the same omen of bad things to come has happened again. On April 9, about 150 melon-headed whales were found beached in Ibaraki Prefecture. As emergency teams race to save the whales, one thought is sitting in the back of their minds: is this foreshadowing another giant earthquake?
http://en.rocketnews24.com/2015/04/13/over-150-whales-found-beached-in-ibaraki-same-thing-happened-before-2011-tohoku-earthquake/
China led development bank AIIB…US loses (more) global influence…
From Wikipedia:
“The first news reports about the AIIB appeared in October 2013. The Chinese government has been frustrated with what it regards as the slow pace of reforms and governance, and wants greater input in global established institutions like the IMF, World Bank and Asian Development Bank which it claims are dominated by American, European and Japanese interests… As of April 2, 2015, almost all Asian countries and most major countries outside Asia had joined the AIIB, except US, Japan (which dominated the ADB) and Canada. North Korea’s application was rejected.”
The US tried to persuade allies not to join, but failed…the UK for example, joined on March 12.
China Stocks….
Shanghai Comp has been on tear, has doubled since July. However, India’s Sensex has more than doubled though over a longer time frame, since Sept 2013. Hong Kong is up about 35% over the past year.
April 8. FOMC minutes and Ten Yr auction this afternoon
–Ten year auction today followed by the FOMC minutes.
–After steepening the last couple of days, the curve pulled back, with 5/30 retracing back to the breakout level of 120. This area should hold, given 30 year bond auction tomorrow.
–The ten year inflation indexed note is hovering just above zero, leading to a new recent high in the ten year treasury/tip spread at 187. Ten year tip yield hasn’t been BELOW zero since it surged into positive territory in May 2013, after Bernanke first hinted at tapering. Real yields are coming down as EU yields push lower and lower.
–Green/blue June straddle spread settled 2.5. 2EM 9837 settled 31.5 and 3EM 9900 at 34.0. About a year ago, green straddles were nominally higher in price. The straddle spreads would appear to support the idea of a steeper curve…possibly associated with the idea that the Fed curtails reinvestment? This article by BBG cites the Feb 2016 principal roll-off and coupon payments as a looming decision time.
–Oil inventories were higher than expected sending crude back down after a strong close yesterday. But if you look at this chart of Illinois gasoline prices, it’s clear that consumers got the benefit of low oil in January, but the second retest of that level in March was associated with higher prices at the pump… [Click back to six month or nine month chart]
April 5. Atlanta Fed Q1 GDP est at just +0.1%
–Weak non-farm payroll data of only 126k jobs added, along with lower revisions to the previous two months, sent yields plunging on Friday. Green and blue (3rd and 4th year) euro$ packs closed up 10.625 bps. At Thursday’s floor close the ten year note yield was 190.4. From treasury futures I calculated a decline of approx 9 bps on Friday’s shortened session to 180.2, though cash treasuries were closed.
–All near eurodollar calendar spreads made new lows. Not too surprising that the market is re-assessing the probabilities for the Fed’s tightening schedule; the Atlanta Fed’s GDPNow Q1 estimate had been consistently declining since the middle of February from around +2.2% to the current level of just +0.1% as data has generally been soft. The employment report is just icing on the cake. In fact, given retrenchment in the energy sector it’s no wonder that job growth eased.
https://www.frbatlanta.org/cqer/researchcq/gdpnow.cfm
–The peak one-year eurodollar calendar spread is still Dec’15/Dec’16, but it settled at just 68, down 4.5 bps on the day. There is not a single 3 month calendar spread that’s higher than 3/16’s of a percent. January 2016 Fed funds settled at a new high for the year at 99.595, or just over 40 bps, indicating just one 25 bp hike for the rest of the year. (Near FF contracts are 9987.5, so the spread between May’15 and Jan’16 is just 28 bps).
–Both stocks and the dollar fell, with stocks testing the lows in March.
–The question going forward is whether the economy is stalling due to lingering effects of the cold weather and the west coast port strikes, or if in fact the stronger dollar and oil price collapse are the main (and less transient) culprits. FOMC’s March minutes are released Wednesday and may give some insights… Also, treasury auctions 3, 10, and 30 year paper this week.
April 3. Post employment yield curve…5/30 breakout
US Treasury market is closed today but the futures markets were open….
After Employment data, with NFP up only 126k, FVM traded up 14/32 at 120-26, an equivalent decline of 8.5 in Fives. Ultra Bond traded up 1-08 to 171-26, an equivalent decline of about 4.25 bps in the 30 yr yield. I marked 5/30 on Friday at 118, which is already a breakout of the downward sloping trendline from late 2013. However, with today’s action we’ve also leap frogged over this year’s high of 120…should now be around 122 bps. I would put initial target at 140… .382 retracement is around 160.
5/30 breakout
April 2. There’s a blood moon on the rise
Hope you got your things together.
Hope you are quite prepared to die.
Looks like we’re in for nasty weather.
One eye is taken for an eye.
–CCR
Ten year yield dropped another 6.5 bps to 186.7, as stocks faltered and ISM had its fifth consecutive lower reading at 51.5. ISM hasn’t been this low since May of 2013. By the way, Brazil mfg PMI lowest since late 2011, and Turkey lowest in six years. In dollars, near calendar spreads once again compressed, with the peak one-yr spread, Dec’15/Dec’16 down 3 to a new low of 72.
SIGNS OF THE APOCALYPSE:
-Blood Moon this Saturday as the earth blocks the sun’s direct rays from reaching the moon, resulting in a red haze.
-California’s drought has become so dire that the governor ordered mandatory water cuts…however…
–The median value of a home in San Fransisco is just shy of $1 million… Redfin says “the median selling price in February in San Francisco was up 16.2 percent from a year ago, to $979,750.”
–GoDaddy’s market value surged to $4 billion.. “had 12.7 million customers…at the end of 2014, generating $1.4 billion in revenue but net losses of $143 million.”
–Picasso’s Les femmes d’Alger is expected to smash previous records and auction for $140 million on May 11. (Suspiciously the exact same amount of money GoDaddy lost…) You could buy a LOT of Iron Ore with that money…in fact, twice as much as you could have bought eight months ago, as the price has been cut in half.
–March was a record for corporate debt issuance at $143 billion. I don’t know how much of that goes to retire old debt, but I DO know that corporate debt is at a record. During the heyday of mortgage equity withdrawals (which I equate to the same dynamic) in the middle of the last decade, the monthly MEW was something like $60b. Financial Instability? Only when the music stops.
Don’t come around tonight,
Well it’s bound to take your life,
There’s a bad moon on the rise
–Alex Manzara
LINKS FROM ABOVE
http://sanfrancisco.cbslocal.com/2015/04/01/blood-moon-with-total-lunar-eclipse-biblical-message-rising-over-u-s-during-easter-weekend/
http://www.bizjournals.com/sanfrancisco/blog/2015/03/san-francisco-1m-median-home-price-oakland.html
http://www.usatoday.com/story/money/2015/04/01/go-daddy-goes-in-ipo-debut/70764122/
http://www.abc.net.au/news/2015-04-02/picasso-painting-les-femmes-dalger-sale/6366556
http://www.metrolyrics.com/bad-moon-rising-lyrics-creedence-clearwater-revival.html
April 1. Here’s a good April Fool’s prank: Let’s cancel all the resting bids in the S&Ps
–Ten year yield dropped 3 bps yesterday to just over 193, as Chicago PMI data was much lower than expected at only 46.5 vs an expected level of over 50. Today, ISM is expected 52.5 vs 52.9 last, which would be the fourth consecutive month for a lower reading. ADP is expected 230k. However, the big action has already taken place with a spike lower in US equities at the release of China’s PMI. ESM went nearly 30 points lower from yesterday’s close, though nearly all of the loss has been retraced as of this writing. Apart from weakness in China, the FT had this piece: Tankan survey shows companies expect conditions to deteriorate. So Japan’s massive QE experiment is faltering as the ECB stepped up to the same plate.
–Stocks are showing signs of rolling over, and air pockets to the downside aren’t a favorable signal. Mini-Nasdaq actually took out the low for March, but is now slightly positive on the day.
–The highest one-year eurodollar spread is now Dec’15/Dec’16 at exactly 3/4%. The previous peak in the curve was Sept’15/Sept’16 which was down 3 bps yesterday to post a new recent low of 74.5 bps. Maybe ADP and Friday’s employment report will change the tone, but for now the market is slowly squeezing out probabilities of concerted tightening. However, just as the prospect of tightening tended to flatten the back end of the curve, a diminished outlook on rate hikes is causing some steepening. For example, green to gold pack spread rose over 1.5 bps and 5/30 treasury spread hit a new recent high of 117.3. 5/30 has been basing between 104 and 120 and looks poised to take out the upper band.
