Tuesday Macros
Dovish Fed Speak Lead to Higher Equities Lower Bond Yields..Chinese Equities 3%
The question facing equities from the macro crowd is whether we have a "melt up" or a 10% correction... Why not both?... Trends are looking for the meltup first... Fed speak yesterday from Brainard, Bullard, and Bostic were dovish, funny how Bloomberg missed Ester George who remains Hawkish, but they were trying to make a point... For now inflation is off the front page, but for how long... Tapering continues to get lots of press... But as we tried to explain to another trader yesterday, tapering is not tightening, it is the delta of reduced Fed buying... Still increasing their balance sheet, latest projection from the Fed of NY is that the B/S will reach 9.2 trillion...currently 7.9.
Equities were up yesterday and are up again overnight...German IFO numbers were strong and Chinese equities closed up over 3%...Bullish forecasts remain, and as we said above there are those looking for a meltup and those looking for a correction... As June, and the last month of the quarter, are in front of us, we think reallocations within equities will lead them higher... Fed tapering discussions and any other major moves look like the Fed is moving towards the Jackson Hole conference in August.
Rates,,, 10 years are looking at 1.58 resistance and 5 years .78... It looks to us that they will break and we will see lower yields before we see 1.70+ on 10 years again...5 year , 5 year forwards have moved from 2.44% to 2.25% over the last two weeks... This should put 10 years closer to 1.47 then 1.58... We will see what happens.
Corporates... Robust start to the week with 10 issuers pricing 14.45 billion of debt. In junk 3 companies priced 3.6 billion as the credit tone improves... GE spreads were better by 5 basis as they announced they will tender for bonds in order to strengthen their balance sheet. Expect to see more of this financial moves to improve balance sheets
There will not be a commentary tomorrow... Return on Tuesday...Have a good Memorial Day Weekend.