Looks like the Central Banks of the world tightening is starting to crush peripheral European bonds..... 10 year Italian bonds are back another 13 basis this morning while Greek 10 years are 27 higher in yield...Greek 20 years are back 35 basis... Italian 10 years have doubled in yield since November... And with the ECB backpedaling, there is no reason they should be lower in yield than 10 year treasuries, basically they are about the same for now until either the ECB pivots again... Greek 10 years have risen 5 x from .50 basis last summer to 2.5 today...
Employment report... Either you believe it or not, but you can't have it both ways... We have never had much faith in how the Department of Labor uses seasonal's and birth/death rates to adjust numbers... Nothing could have been more clear about that in Friday's numbers... No one was close... The two we follow more closely, GS and MS, were off by 700,000... Really, the smartest groups of economists were off that much? Or was the number wrong?... way you can't have it both ways... Either the economy is stronger than they portrayed over the last year, showing consistent strength, or their current census seasonals were plain wrong... But lets look it both ways... The stronger number tells us that the US economy is not going into recession any time soon, and even with a Fed mistake of over-tightening or dovish tightening, the US economy will continue to head higher...This was the message that the equity market picked up on Friday... And after a choppy session overnight, we are higher as we write... Take the employment report one step further, if hiring continues to be that strong and more people are coming into the pool of workers, we SHOULD SEE THE SUPPLY CHAINS IMPROVE...which will mitigate inflation....as for treasuries and other spread products, we see weakness ahead... There is a light at the end of the tunnel, but not today..
Rates...all of our support levels were hit Friday...1.31 2 years..1.77 5 years and 1.92 10 years... They are all hovering near those levels now...WE DO NOT THINK THEY HOLD....REMEMBER THERE ARE A MASSIVE AMOUNT OF 10 YEAR PUTS AT THE 127 STRIKE LEVEL THAT EXPIRE FEBRUARY 18... That indicates to us of further weakness ahead... Could this be the first 10 year auction in awhile where we see a 2% coupon?... The odds are 50/50 right now....with Central banks on the hawkish path, with the BOE and ECB pivots last week... We see higher rates ahead... We will do the chart work later today..
Equities... JPM was out this morning recommending equities, we will send the BB link... Simultaneously, Mike Wilson of MS, still sees weakness ahead for equities...Kostin of GS likes small caps, but others see weakness ahead...as for us, we bought some equities at the 15% corrective level on the Nasdaq, but so far that is a push at best... We have powder dry and will look for weakness ahead... Key time frames is the Fed March meeting... Fed meetings always seem to be pivot points...
Credit... Expect another 20 billion of issuance like last week... But wider spreads are indicated by the charts... Both IG and HY are wider this morning... We see that trend continuing until the Fed meeting... But if equities rebound significantly, that could alter our view...
Inflation... Fed is way behind the curve... No question about that, regardless of what Fed governors say... Nonetheless we have an expected CPI number this week of 7.2% YOY... While many like Ruskin of DB, who said over the weekend that " unless you think inflation comes down rapidly due to factors that are not related to tighter policy , THEN THE FED IS MILES BEHIND THE CURVE...