Slow & Steady

Ever Since 8:30 Cash open  major US stock indices have had a slow and steady climb higher.per WSJ SPX is headed for its narrowest monthly range in 66 years  .below are 3 minute chart sod Spooz, NASDAQ and Russell.The Russell is higher on day but more of a choppy move higher compared to slow and Easy move of the others. Spooz and Nasdaq “just close your eyes and buy them” works everyday it seems.









Warsh and Yield curve

All week US yield curve has traded wider or Steeper due to tax proposals,maybe higher inflation.But that all changed when news wires reported Trump has spoken with  Ex fed Governor Warsh about open FOMC Chairman post.He is a hawk and markets responded by pricing in a more aggressive Fed.Below find 5/30 yield curve on one minute chart.

warsh intra

PCE Core

Fed favored metric is trending in the wrong direction.Fed  wants/needs to hike rates so they will continue to ignore the Weak inflation readings  for now.Below is the graph of the monthly percent change in Core PCE Y/Y vs prior month ,the trend is not higher


Morning 9-29

Quiet overnight Compared to last few sessions. Treasury Complex does show lower prices but net change is minimal. The past 2 days Bonds were sold worldwide as thoughts of new reflation trade, Central banks hiking rates and all is well with world economy drove prices lower. Overnight we saw some data that may cloud this sentiment. Japan’s Construction orders dipped 10.6% in August, London home prices had first annual dip since financial crisis (BB) German Retail sales missed expectations and Eurozone CPI missed on both core and headline by .1%, not the data points to show World Wide Economy growing. The announcement of the Trump tax plan was met with a risk On move for markets but similar to most Announcements by this administration the Euphoria is short lived .A Handful of Senators, especially Orin hatch are not fans of the elimination of the State deduction function in new tax plan, the elimination of this deduction was one of the ways that tax cut will be paid for. A comment “Hatch on tax reform: “I don’t want it to be some piece of crap, which we’re so used to around here.” Politico. Any headlines reporting progress or lack of it on tax deal will have impact on markets. Trump will be promoting his tax plan as he speaks to national association of manufactures later this morning. Another Area to keep an eye on is Spain. The region of Catalonia is trying to vote on a referendum for Separation from Spain, this has been an ongoing issue for years. Spanish Government has said there will be no Vote this weekend and deployed troops to stop citizens from voting, there could be some chaos in that part of the world over weekend. Month end Quarter end today.
Spoos a whopping 3 handle range, Gold unchanged and Currencies steady. Bunds are +40 ticks as that disappointing EZ Cpi has caused prices to firm Buxl +90 and European 10 year yields are steady .The correction in oil continues today but not aggressively so, as prices down a couple of ticks. A Pretty quiet overnight session.
Today’s Calendar:
• PCE core 7:30 Feds favored Inflation gauge
• Chicago PMI 8:42
• Crop report 11:00
• Feds Harker( voter hawk) @10


Yield Curve

From Bloomberg

block trddd

The end of/ or profit taking in the Flattening of the Yield continues today.Yield curves function as an Indicator they flatten or steepen for various  economic reasons and portend growth or recessions.US yield curve has  trended flatter for weeks in fact the 5/30 was the tightest in 10 +years.What Changed ?The Trump tax plan announcement is what changed.Steepening of Yield curve indicates a couple of things 1) Rising Inflation Expectations 2)Stronger Economic growth 3) in the case of tax cuts an increase in deficits that will be funded by selling more treasuries.All of the movement last 2 days is due to some type of tax cut being implemented.The size and  timing still not known  but yield curve is on its way to readjusting for this impact .

5/30 yield spread below

45 30 curve

Market Update

Theme for today’s price less fesd? risk On? Reflation?  Spoos,5 years, Gold,Copper and Dax all running up to new highs, Bonds have not  made new highs but  are rallying.What is  moving lower aggressively is Oil.Crude oil has taken out the prior 2 day lows as the uptrend appears to have stalled.5 of the 6 most actively traded oil options are Puts and top of a gap price level $51.13( todays lows 51.13) is in sight.A  confusing last half hour of trade as One central theme is hard to find to describe the trade.Dollar sideways and Yen moving higher

Copper has had best day in month as China may Cut Reserve requirements on some banks to help stimulate lending also China closed for 1 week holiday may have forced some players to get business done before  the long market break.The tax story trade will continue to play out until concrete details and actual Corporate tax levels are  known until then I believe markets will trade with the most optimistic view  until  shown otherwise.We  are in a bull market aren’t we?Mizuho believes the russell or small cap stocks will be biggest beneficiary of Corporate tax cut as measured by  a larger increase in earnings  compared to big cap stocks.Maybe Quarter end trades  starting to show up causing the confusion  over last hour of action.NDX down a few ticks as Apple lower by  .6% along with other tech hardware peers.Whereas Amazon,Goog up on day

Stocks,Short term treasuries,Gold and Yen all higher.Dollar,Bonds and especially oil lower, markets marching to their own beat .Just released 7 year auction bullish for  prices as Yield lower than WI and Bid to cover higher than last 5 average.


A Nice piece From Macro Man

(Bloomberg) — There’s an oft-quoted cliche that the definition of insanity is trying the same thing over and over expecting a different result. Another aphorism puts it slightly differently: fool me once, shame on you; fool me twice, shame on me. Financial markets seem to be in the throes of another love affair with the U.S. reflation trade as the dollar, bond yields, and small-cap stocks have all enjoyed a stellar September. Are markets crazy to succumb to another bout of tax-cut fever? Perhaps, and it will be important to keep track of how much good news on the fiscal front is in the price. However, investors should also remember that there are plenty of sane reasons why markets reflated this month.
• For the past few weeks markets have been operating from the November 2016 playbook. Sell tech stocks and buy small caps. Buy dollars against other major currencies. Sell bonds and buy inflation breakevens. Those trades all performed well for a few weeks and then suffered for much of 2017. Are traders cruisin’ for a bruisin’ again?
• At this point it’s pretty early in the game to quantify how much of recent market developments represent optimism over favorable U.S. fiscal policy outcomes. Probably the best way to isolate this factor is to look at the performance of high tax firms versus the broader index. While companies with higher-than-average tax rates have outperformed recently, on an aggregate basis they are still slightly down since just before the election
• The rise in bond yields has been notable, but it’s important to remember the starting point. August ended among concerns over the economic impact of the recent hurricanes and left the Treasury market badly overbought and traders overly pessimistic about the Fed. To a large degree the recent rise in yields has been about unwinding unrealistic expectations, a process that may be largely complete for the time being
• As for the dollar, it may be a coincidence that it started its recovery when USD/CNY hit 6.50 and the PBOC made it easier to short yuan — but probably not. Obviously yields will remain a significant driver of the dollar’s fortunes, so it’s important not to get too bullish too quickly
• At the end of August there was clearly too much pessimism priced into Treasury yields and the dollar. Much of that has now been unwound. Recent trends can continue without raising too much of an eyebrow — say, 10- year yields to the 2.40-2.45 level. Absent a fresh catalyst, however, pushing beyond there will require buying into the same narrative that failed so badly earlier this year. While that might not be crazy, there’s no guarantee that it’s sane
• NOTE: Cameron Crise is a macro strategist who writes for Bloomberg. The observations made are his own and are not intended as investment advice.
To contact the reporter on this story: Cameron Crise in New York at

market implied policy rates

Below is the graphs that shows what markets were pricing in for the Fed Funds rates over next 3 years 2 weeks ago and today.The curve has  shifted higher indicating market pricing in a more rate hikes.Graphs not as clear as I would have liked  but green Line is today’s pricing and the yellow line is 2 weeks ago.


Morning 9-28

Bond Rout continues Are the headlines across Reuters & Bloomberg .Trump Tax plan, higher German CPI,US 10 year yields breaking above technical resistance( above 200d MA), A few Block trades overnight, Quarter End and maybe most importantly market pricing a More aggressive Fed next year. European Yields( in Bps ) Higher In Germany +3.8 ,France +3 Australia +7 and japan +2.8.US treasuries have recovered from the overnight lows but still down on day. The peripheral Countries Debt yields are trading lower Spain, Portugal etc. Bond markets finally realizing that Central banks are raising rates and just maybe entering the beginning of a tightening cycle.30 year yields from yesterday’s lows to today’s high 16 Bps.,10s 13 Bps. The big story is the adjustment of Fed rate hike Expectations for next year. Oh Oil trading higher as well last couple of days this too weighing on Bonds.
Higher bonds=Higher rates=Lower stocks?? Maybe as spoos trade lower by 5 handles and NASDAQ -19 European stocks Steady and euro +40 Pips. Gold unchanged and Dollar little changed. One sector loves these higher Bond yields US banks. KBW bank Index +1.8% over last 2 days.
Final look at Q2 GDP shouldn’t move markets too much today nor Should Jobless claims release.2 fed speakers today George 8:45 and Fischer who does retire in 2 weeks.