Bad News Bears

Happy Friday everyone.

Well, for all the hard data bears, is it time for your victory lap?

GDP printed at 0.7% vs 1% expected. Digging deeper, one sees that consumption was well below expectations and inventories subtracted 0.93% from growth.

Jeez. Whatever happened to those animal spirits everyone talks about on CNBC?

With what I consider a pretty bad number, the markets seems to be taking it well (for now). Stocks peeled off a bit, but let's see where we close for today.

What's interesting is that we still see yields higher on the day (albeit slightly) and 10-year breakeven inflation (BEI) still bounced off the print.

Zooming out, for all the technicians, 10-year BEI had a very nice weekly bounce off the 200-day - why isn't anybody talking about this? Is anybody talking about this?




On top of that, an additional thing I like keeping my eye on is the US 2s10s BEI curve. This curve steepened on the number - that usually means to me future growth expectations. It's steepened for the week as well and it has risen notably since going temporarily inverted in March.

Something to go "Hmmm" to:


Copper is also interesting, bouncing on the number and looking to close higher for the day/week (for now).


All things to chew on for the weekend before the FOMC meeting coming up next week.

On a separate note: I am loading up on the Weeknd for the weekend - hopefully while enjoying this awesome New York weather!



Have a good weekend!


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MacroWatcher
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April 28, 2017 at 5:18 PM ×

First, let me confess to being a hard data bear. Nevertheless, I see the weak Q1 GDP data as having very little signal. Not only is GDP highly prone to revisions but also it didn't really tell us something we couldn't infer from the hard data releases we have seen so far. For me the real issue is whether the weakness goes into Q2 and US flash PMI's point in that direction.
Regarding to the eq mkt reaction , it has been ignoring economic data for a while now. Actually, for me it's impressive that bonds pretty much held their ground recently despite US equities making new highs. Also , If we look to Europe one could take the view opposite to yours with bunds , as they have now recovered all of today's losses after strong CPI data.
On copper and breakevens , I fully agree with you. I'm watching those very carefully.
For me the summary is the following : rates broke previous range on the downside and they are now near that level again. Given the recent choppiness, I have taken some profits but will increase position as further evidence of weak Q2 data appear ( or cut it if data proves me wrong). Stuff I am looking into to is trend of weak loan data ( Corelogic had a pretty good post on this recently) , oil prices + china inf proxies and the fact that labor costs seem to be eating into profit margins. Given that Q1 earnings were pretty good, the last point is something I'm watching closely. You've seen some evidence of this effect on profit margins quite a bit lately and could have a big effect for Q2 and onwards.

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Skr
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April 28, 2017 at 7:04 PM ×

With a metre of snow in Hungary last week and a wind chill factor that would freeze the balls off a brass monkey across Europe, I am envious if you have to complain about the air con not working ;)

Have a good one.

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Skr
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April 28, 2017 at 7:23 PM ×

On the hundredith day he said "let there be light" so he rested.

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IPA
admin
April 28, 2017 at 8:09 PM ×

Good point Skr, some small economies in Eastern Europe will suffer from April freeze as their agricultural base is devastated. We don't hear shit about it here in US, or as we like to call it the "World". I checked out some pics from Moldova and it looked like a war zone a week ago. Now, who in the world of madness gives a shit about a country that needs a magnifying glass to be found on the world map? The significance of the question is hidden in the physical location. Wars began over small forgotten countries in the middle of Europe for centuries. You then take the egocentric lunatic brain-farting his way to a hundredth day and threatening to pull out of any trade agreement known to mankind, and you couple that with Brexit and possible Le Pen victory (save the counter arguments until May 7th please) increasing the likelihood of EU cracks, and then you get all those small agricultural economies looking for some kind of a bailout from IMF at some point because EU cohesiveness is on life support, UK has its own problems to figure out, and US is minding how to stick a shovel up its neighbor's ass. Now, perhaps I am exaggerating a bit, but those small countries are all booming until a freeze comes in April, literally. Self-dependency is not an option when you were a part of Soviet bloc for quarter of a century and then all of a sudden found love from your Western neighbors who want you to act like you know what to do with your self-proclaimed free market economy in order to receive help from them in a form of a perpetual bailout. You are always either a part of something larger or you are dead. Putin will be calling them in not too distant future offering help, I am sure.

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checkmate
admin
April 29, 2017 at 8:12 AM ×

Putin couldn't afford the largesse the EU lavishes on Hungary. I suspect Budapest as created more new millionaires in the last 10 years than the UK, France, Germany, NL put together. I mean it was always was bureaucratically corrupt way back when ,but given the lack of monetary control in the EU it's been taken to another level. A little agri hiccup due to snowflakes is hardly likely to trouble them that much.

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checkmate
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April 29, 2017 at 11:44 AM ×

More as a means to divest some of my angst than provide a piece of information. I note the moronic tendency of the media et al to associate slow UK Q1 growth with 'post Brexit' referendum. OK , I'll give passing brief nod to property effects in and around London that might conceivably be partially explained by Brexit. However, in amongst the data weakness was primarily in Construction ! In my view this is a timelag effect now transparent directly related to govt policy and the property market. We have seen policy squeezes applied to reduce foreign buying in London; reduce BTL activity generally nationwide; stamp duty /transactional costs escalating due to elevated housing prices. Though Joe P might not be C & M Acctcy trained he can still work out simple alternative cost plans that compare the cost of stay/upgrade V cost of moving. Take it altogether and you'd have to be astounded NOT to see construction sector soften. OF that what small piece is actually anything to do with Brexit? We should see confirmation at some point when the figures through for the GOVT take in stamp duty. I guess it suits a lot of people to deflect the real causes onto something Brexit related.

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Jim
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April 30, 2017 at 3:59 PM ×

1236 tons of gold that is supposed to be part of Germany’s currency reserve will continue to be kept outside of German control in New York – indefinitely.

http://norberthaering.de/en/home/32-english/news/787-bundesbank-gold

Would love to know the truth about this story.

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hipper
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May 1, 2017 at 2:03 PM ×

Perhaps that's why the US needs to steal the gold of every country they invade. They might not nearly have as much as they claim. They almost (really) went bankrupt in 1970 as many countries distrusted US public finances and demanded gold back, and first had to raise the fixed USD/gold ratio, and finally disband gold all together through the oil-for-dollars scheme, basically forcing everyone else to use USD. A fraction of the holders might get their gold back if asked but for most to get it would require WW3.

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Jim
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May 1, 2017 at 2:23 PM ×

Yellen says Fed purchases of stocks, corporate bonds could help in a downturn http://reut.rs/2dq0GKn

As if Yellen really has a choice. She must follow the the game orchestrated by the other central banks, i.e. “whatever it takes”.

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johno
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May 1, 2017 at 5:58 PM ×

Well, well, well. 10Y is +5bps as I write. That despite disappointing ISM, disappointing spending, disappointing China PMI, and oil trading down on Saudi Asia price cuts. Maybe just another false trading signal on a lightly attended day? Will be interesting to see whether this is reversed tomorrow. By the way, people see the non-commercial position in the 10Y is the LONGEST since 2007? Being bullish bonds is SO consensus (yes, I'm taunting LB a bit here, but I respect him/his view and being long is the better way to go in the "thrashing around" rate market since you earn carry and make money if something goes seriously wrong in the world). Q1 GDP is being written off as the usual Q1 dip, worsened by delayed tax refunds and unseasonably warm weather lowering utility output.

The ECI, arguably the best US wage inflation measure statistically, was strong Friday. The trend does seem to be up, though not yet roofing it. European inflation was also stronger than expected, though much of it is unwinding last month's holiday-related distortion. The trend does seem to be flat-to-moving higher in core though.

Seen some banks coming out with long TRYZAR recommendations. Fits my view. Separately, will be interesting to see whether the onshore FX liberalization in Malaysia encourages foreigners to get back into the bond market there. Effective May 2. MYR has tended to move with foreign flows into/out of its bond market.

Any views on uranium here?

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River
admin
May 2, 2017 at 2:32 AM ×

Martin Armstrong: Interest rates will not go up materially due to huge amount of Govt debt. Stocks could double from here

https://www.youtube.com/watch?v=pnid7Ed7NAY

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checkmate
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May 2, 2017 at 9:18 AM ×

I think at least some part of the long bond positioning was due to the likelihood of political dysfunction in Europe and indeed if one thinks Yellen external downside risk such a position also correlates with the Fed choosing to delay rate rises whilst that risk remains. I personally took the first round of the French elections to be significant in reducing that risk and the US data at this point doesn't convince me the Fed won't go higher in June. If that's the case I think Longs are pointing in the wrong direction and I note any buy of a dip last week currently looks 'wrong'.

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IPA
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May 2, 2017 at 4:06 PM ×

Auto sales... Ouch! Close below $42.65 on XRT probably ends the corrective move and downside resumes. On top of the lack of love for autos, I say pretty soon she is probably done remodeling and he does not need any more power tools (sell XHB with big HD weighting). It's all very predictable, autos lead the consumer spending decline. So much for Trump related sentiment boost.

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Leftback
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May 2, 2017 at 7:54 PM ×

Crude sinks below $48. To me, crude is the key to almost EVERYTHING here and it is why I am long TLT etc.., b/c it drives inflation expectations, and b/c it also drives HY credit spreads. Once those begin to widen, Tsys and JPY will go bid and risk assets (HY, equities, CAD) will all be sold. We are getting closer and closer to another crude meltdown….

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IPA
admin
May 2, 2017 at 8:42 PM ×

Leftback, I think WTI is in the $47-53 trading range. So time to look for a "got ya" trade, aka the stop scoop. Add some XLE and XOP calls on this.

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Leftback
admin
May 3, 2017 at 5:03 PM ×

IPA I see it - but am not sure that oil trading range can hold.

WTI crude still struggling to hold on to even the smallest of short-term gains. Fundamentals are weak and deteriorating as we approach the summer. Perhaps it can stay above water between $47 and $50 until the traditional July 4 peak, perhaps not. One day this summer we are going to walk in and see another meltdown beginning, with all of the predictable consequences for inflation expectations, bond yields and reflation vehicles. It's not just the supply issues, US demand is really weak and you can see it in RBOB as well.

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abee crombie
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May 3, 2017 at 6:36 PM ×

Nico, I am starting to feel your bearishness for US stocks...

Bitcoin and the other crypto land going insane, US tech stocks can do no wrong. Just feels like silly season

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eruditetroll
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May 3, 2017 at 9:04 PM ×

The fat lady just went into her dressing room to get changed for her performance.

Just saw where somebody examined gaps in the Dow near market highs. A simple screen of the price within two percent of the high to date and the low for the day at least 0.25 percent above the previous day's high remarkably yielded only six instances in the entire trading history of the Dow Jones Industial Average - three of those within the past two months. The other three occurred in... August of 1929.

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Leftback
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May 3, 2017 at 9:20 PM ×

Dame Janet: "The slowing in the US economy is transitory". Hmm.. so it's just a "pause". If Washington doesn't get a move on replacing monetary stimulus with fiscal policy, then the pause may last a while.

We are now clearly on course for another rate hike in June, then, with no fear of a win for LePen, apparently. In fact a hike is now almost fully priced in at the front end. What the belly and the long end is pricing in, well that depends on what happens between now and June, but it wouldn't be a surprise to see the curve flatten once again before the next FOMC meeting, especially if US data remain soft and inflation is muted. A flatter yield curve is invariably a feature of Fed tightening cycles, but we are going to be stuck with an asymptote of 2-3% for a while, and not heading to 4-5%.

The dollar didn't react a great deal to the statement, so perhaps this year's tightening was priced in long ago. Technical considerations suggest that the DX is contained for now, and will remain below 100. Now we are back to waiting for the employment number on Friday to see whether a break lower in long bond yields and the dollar might be in the cards.

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TraderJim
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May 3, 2017 at 10:04 PM ×

LB - also copper has been sagging, if the China credit tightening story comes back that may also flatten yields

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May 4, 2017 at 1:03 AM ×

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johno
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May 4, 2017 at 5:26 PM ×

Hilarious day. Crude crashes, but bonds and dollar sell off. Explain that to the solicitous risk management.



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EM/PM
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May 4, 2017 at 6:30 PM ×

Somebody blowing up in crude? Andurand, Andy Hall I am looking at you). But seriously, half of SPX earnings growth coming from energy sector this year - and there is no reaction. Weird levitation on some policy noise.

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Jens
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May 4, 2017 at 6:34 PM ×

I know, what a sh1tshow right. I actually put on some EURNOK short yesterday, decent size too. Thought it would fit my book pretty nicely as I own quite a bit of duration. Oh well. Goes to show that the market always manages to choose the path that inflicts the most pain I guess...

johno: you holding on to your EURNOK here?

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johno
admin
May 4, 2017 at 7:33 PM ×

Hi Jens,
I just increased my EURNOK short today (9.51), by a lot. Seeing I've been so wrong on this pair, no one should take comfort from that. Arguably the opposite ;)
Had kept the position modest enough until today, though now sitting with a decent loss on this. Not my style to add to a losing position (other than with options), but this seems too compelling now. Looks oversold and very cheap on models.

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IPA
admin
May 4, 2017 at 7:52 PM ×

I am aggressively adding to XLE and XOP longs on this crude weakness. Still think crude goes back up to $52(3). It overshoots all the time. I knew the range on the lower side could extend to $45. Been yapping about it for a while. Could go up just as fast as it came down. Stop scoop.

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Laughing Man
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May 5, 2017 at 5:39 AM ×

iron, oil are puking, some other ctys and hk following
asian markets otherwise pretty relaxed
(very unsubstantiated) rumors of cty fund being stopped out

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IPA
admin
May 5, 2017 at 6:00 AM ×

Laughing Man, I am taking the other side of this right now. Aug 2016 low stops went through. Originally wanted to play XLE and XOP only, but this last leg down in crude does have a forced liquidation smell to it. I initiated a small long @ $44.15 on WTI and will add to it if goes my way.

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Jens
admin
May 5, 2017 at 9:14 AM ×

Thanks johno. Does help to know that at least I'm not alone in my EURNOK misery :).

Interestingly, eursek rallied in sympathy with eurnok yesterday. I see little fundamental reason for that so might add a bit to that too.

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