Today was an important day in the bond market. The US Treasury auctioned $40B of 10-Year notes. Coming into the auction – I was worried there would not be a decent bid. For example, if we faced further buyer’s strike – these yields were likely to resume their path higher. However, we saw the opposite. The 10-year yield drifted lower. So what does this tell us about future economic growth? Are investors worried? In addition, the price of WTI Crude is also sharply lower… back below US$80/bbl on concerns of weakening demand. Are equities slow to connect the dots – as they are headed in the opposite direction.
Fed Trying to Thread a Narrow Needle
Tomorrow we will hear from the Fed. It’s very unlikely the world’s most influential central bank will raise rates this month. However, it’s my view Jay Powell is not about to drop any dovish hints. Remember: just because they may be closer to the end of rate hikes – that doesn’t mean they are about to cut. Rate cuts are dovish. However, rates staying higher for longer is hawkish. And as inflation comes down, this means real rates are rising (with the Fed on hold). From mine, we hear a hawkish Fed tomorrow. And the market has not priced that in.
Have Jobs Slowed Enough for the Fed to Pause?
Last week offered plenty of macro data for traders (and the Fed) to consider. Core PCE remains stubbornly higher at 4.2% YoY – moving higher month on month. However, there is signs of a slowing labor force – with job additions missing expectations. The question is whether the jobs market is now slowing enough for the Fed to end rate hikes? For example, total unemployment is very strong at 3.8% and there are almost 9M open jobs. That’s not a weak labor market…
Oil: Headed Back to $100?
November last year I felt there could be an oil supply shock in 2023 – sending the price back over $100. This week OPEC+ surprised the market by announcing cuts of 3.7M barrels of oil per day – around 4% of global supply. The price of WTI surged back above $80. I think we go higher from here… which won’t help Jay Powell’s fight with inflation.
For a full list of posts from 2017…