Thursday Macros
Mild Risk Off Again...Treasuries Better...Chinese Tech Slammed...US Corp Rock
A colleague wrote this morning " Yesterday marked the 50th trading session that 5 year treasuries have traded at their February 25th closing level of .82"... Interesting... We have clearly been range bound, even though 10 years have traded from a 1.76 high yield close on March 30, 2021 to a low of 1.126 on August 4, 2021... This tells us that the real action has been in the credit markets, where one can still get some yield... Both HY and IG have been where the action is... And it was no different yesterday where we saw another 17 borrowers price over 27 billion of issuance with ease...Walmart was the leader with 7 billion priced... This brings us to over 60 billion priced in the first two days of a holiday shortened week (why do they always seem longer)... And we have now priced over 1 trillion for the year... How long will this last? Hard to say, but it looks like clear sailing... Low rates and Central Banks are too scared of their shadow to bring in accommodation... John Authers writes this morning "Debt markets eerie calm echoes the eve of the financial crisis"... We agree, but it is all about timing... The Fed and the other CB's have gotten the world hooked on their "low rate sauce", can they ever weed them out of that?... Stagflation looks closer every day... Inflation is not going lower and supply chains are not improving for now... Now back to the overnight session.
Chinese tech got slammed again as regulators are back out there in force.. Tencent was down over 8% this morning and the HK indices got hit hard, with Hang Sang down 2.3% and their Nasdaq down 2.81%... This led to an overnight low of about 27 points down for S+P futures... They have made most of that back... This is September so do not lose track that a correction could creep up... Employment situation does not seem to be improving in this country and the uptick in jobs, with the record jolt numbers, does not seem to be getting people employed. There is more going on than meets the eye.
Fed... Lots of Fed speak today... Bostic was out overnight in the WSJ saying the Fed will taper this year, but not announce in September...Kaplan speaks today and will say that September should be the announcement for starting to taper immediately, but that won't happen... Even the Doves like Williams think the tapering should begin this year, but he and the others that say that are losing sight of the clock... If the Fed can overemphasize that tapering is not tightening, then why can't they make the same argument that tapering has no direct correlation to "maximum employment"... Whether the Fed tapers or not will not cure the supply chain problem, won't cure the fears of Covid, won't change where the jobs are versus where people live, won't reverse the 55 year old's who have retired... The only thing that tapering does is keep interest rates lower. Corporations continue to come with massive amounts of issuance that they are either using for financial engineering, or just accumulating.. Well over 7 trillion held...
The next major announcement will be whether Powell gets reappointed... We think he will but the longer Biden waits the lower the odds become...that will remove one uncertainty from the market, but Powell needs to get on the tapering treadmill now, while markets are still good and the window is open... Asset prices are high enough and many are in bubble territory.
30 year auction today...we expect it to go well enough... Range for 10 years is 1.28-1.38 for today... We will adjust as needed but 1.38 is strong support...
Maximum employment may be goal that is impossible to reach... Jolts data came out this morning 900,000 job openings higher than the expectation... 10.934 million openings... And jobs are going unfilled... How long can these jobs stay out there before technology replaces them?... Or is it that everyone has moved away from where the jobs are?... Supply chains are making it worse... Ask yourself how car companies can hire more people if they can't get chips to make the cars... And that is just the easiest analogy to make... Then take it a step further... HOW IS DELAYING TAPERING GOING TO SOLVE THE JOB PROBLEM?.. It isn't... All tapering is doing is making the asset bubble worse... Continuing tapering is not the right answer for maximum employment... Corporations do not need more help raising money ... There have been 700 IPOs this year and we are about to break 1 trillion of corporate bond issuance, and we are only in September... That is on top of the close to 7 trillion of cash on corporation balance sheets... The solution the Fed is pursuing for employment is not the right answer...
