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Things That Stick Out: Friday Edition Most traders know that by the time a trade makes the front page of the NY Times, you should be out the door, or at least standing near it. Today’s edition: US Bond Market Braces for the ‘Trump Trade’ of Large Tariffs and Deficits The Times frames this as a new threat, apparently unaware of the current administration’s tariff and deficit spending policies. And as if on cue, forward inflation breakevens turned sharply lower Friday, helped in part by a third monthly decline in core capital goods shipments. (See chart below) As we wrote earlier this week, with global macro conditions deteriorating, the recent move higher in rates is a fade rather than a trend to embrace. See: Things That Stick Out: Election Trade Edition, Part 2 and Things That Stick Out: Beige Book Edition See original IGM post here: https://lnkd.in/eDFTnVPg IGM | Informa Connect #inflation #recession #interestrates #federalreserve #election #financialmarkets

Things That Stick Out: Beige Book Edition In his post-FOMC press conference last month, Fed Chair Powell cited the findings of the Fed’s Beige Book for forcing his hand on a 50-basis point rate cut rather than the standard 25. Here’s the money line(s) from the September 4 publication: “ Economic activity grew slightly in three Districts, while the number of Districts that reported flat or declining activity rose from five in the prior period to nine in the current period. Employment levels were steady overall, though there were isolated reports that firms filled only necessary positions, reduced hours and shifts, or lowered overall employment levels through attrition.” The beige Book has never been a big market mover, but like the University of Michigan inflation expectations survey in Spring 2022, Powell plucked it from obscurity and declared it a new policy benchmark. Fast forward to yesterday, where the latest Beige Book summary reads: “On balance, economic activity was little changed in nearly all Districts since early September, though two Districts reported modest growth. Most Districts reported declining manufacturing activity.” That’s as bad, if not worse than the previous report that made Powell panic. Despite observable deterioration in the economy, the Street’s got its hair on fire, bracing for a Trump victory by pushing yields higher on expectations of a sudden surge in deficit spending. Where have these guys been for the last four years? It's not like the Biden administration has been a model of fiscal sobriety. (See chart below courtesy of Deutsche Bank) Bottom line: given the weak economic backdrop, the 'Trump trade' selloff in bonds is a fade. See: Things That Stick Out: Election Trade Edition, Part 2 See original IGM post here: https://lnkd.in/eEwT8T9M IGM | Informa Connect #inflation #deficit #election #federalreserve #interestrates #financial markets

Things That Stick Out: Election Trade Edition, Part 2 Price action in rates and FX this week feels like one giant liquidation of positions as the outlook for interest rates swings like a pendulum from one extreme to another. After the weak July payrolls report, investors rushed to sell the dollar and bet on aggressive Fed rate cuts into year-end. Now, with the former president recently taking the lead in betting markets, it’s OMG!! Trump!! Inflation!! While we disagree with the conclusion, we understand the sentiment. See: Things That Stick Out: Election Trade Edition However, what hasn’t changed is the steady deterioration of economic activity abroad as a headwind for the US. Just today, the Bank of Canada cut rates by 50 basis points, teeing up a potential similarly sized move in December by citing the need to reduce supply (in both labor and goods) and generate growth. In Europe, ECB Governing Council Member Mario Centeno said that downside risks to both growth and inflation are accumulating, adding that a larger 50 basis point cut should also be considered in December. Apparently, 50 is the new 25. Yesterday, we highlighted the sharp steepening in the German yield curve as a red flag for recession. It’s still going. The panic is palpable. So, with global macro on the ropes, we find ourselves more sanguine about the rise in US rates and are inclined to think that this is a move to be faded, not pressed. See original IGM post here: https://lnkd.in/dgpYfjkg IGM | Informa Connect #inflation #interestrates #federalreserve #election #usdollar #canada #germany #financialmarkets

Things That Stick Out: Election Trade Edition As long as everyone else is giving their opinions on ‘election trades,’ we might as well have a go. We’re not buying the Trump = inflation theme simply because he advocates the use of trade tariffs. That conclusion rests on two assumptions that are at least debatable: 1) Tariffs are forever. Maybe, even likely, not. If terms of trade can be favorably renegotiated under the threat of tariffs, why keep them going? 2) Foreign exporters will pass on higher costs embedded in tariffs. Trump levied tariffs on China in his first term and rather than lose market share in the US, they ate the increase as a cost of doing business. Take a look at the German yield curve today. It has gone straight up since betting markets started breaking in Trump's favor a week ago. As a recession indicator, that suggests life is about to get a lot harder for Corporate Europe. And while true that neither side has adequately addressed the issues of debt and deficit, after the election the rate of spending will probably recede from its currently ridiculous pace as the incumbent government, either way, will have nothing left to play for. Thus, we’re inclined to fade this move up in rates. See original IGM post here: https://lnkd.in/dYqBZknD IGM | Informa Connect #inflation #recession #election #china #europe #germany #yieldcurve #tariffs

Did you join us for our IGM Credit Focused networking and drinks earlier this month?💡🥂 We hope you enjoyed joining us in London to connect, exchange insights, and get your pressing credit questions answered in a dynamic and relaxed setting. Watch our official highlights from the evening here✨🎬 >> http://spr.ly/6048qYuLM #IGM #credit

Things That Stick Out: Monday Edition Of all the election scenarios running through markets, one of the few that makes sense as Trump widens his lead in betting markets is the likelihood that tariffs will be deployed to renegotiate the country’s terms of trade, especially with China and Europe. It helps explain why Chinese markets remain subdued despite recent stimulus measures, and why European sovereign bond spreads suddenly gapped wider Monday. The Euro, which has been in a controlled descent for the past few weeks, is accelerating as another potential headwind confronts the feeble European economy. And even though positioning in the common currency has been declining, the specs are still long and provide plenty of ammunition for further downside selling. See original IGM post here: https://lnkd.in/eNsU-kZ4 IGM | Informa Connect #interestrates #tariffs #europe #fx #eur #usdollar #financialmarkets

Thank you to everyone who joined us for our Women in DCM networking event in New York City last week 🎉 It was inspiring to hear from senior women leaders in the industry who shared their insights on navigating their careers in DCM, mastering work-life balance, preparing for the future and much more. Thank you to Phoebe Caneda-Kolman, Catherine Awong, Christie Totman, Kerrin Black, Maheen Baig and Kristen Powers, CFA for sharing this with us! We hope you enjoyed the opportunity to connect, learn and be inspired! Stay up-to-date with our events here >> https://lnkd.in/e9yhtMqR #IGM #WomeninDCM #DCM

Things That Stick Out: Friday Edition The chart below of US public debt has been making the rounds Friday. As one can see, outstanding debt exploded by almost half a trillion dollars in just the last three weeks to $35.74 trillion. We won’t go into details other than to say that election-year spending is not a conspiracy theory and something to keep in mind as we reflect on this month’s surprisingly better-than-expected reports on employment and retail sales. The other thing that sticks out today is the subdued reaction in the commodities and FX markets to the across-the-board beat by key Chinese economic data for GDP, retail sales, IP, and fixed asset investment. Skepticism is becoming palpable as rates and risk-sensitive FX retreat, supporting our suspicions that the global macro condition is probably worse off than it appears. See: Things That Stick Out: Thursday Edition See original IGM post here: https://lnkd.in/dVhVMJjn IGM | Informa Connect #debt #recession #treasury #federalreserve #interestrates #fx #financialmarkets #china

Things That Stick Out: Thursday Edition September retail sales came better than expected Thursday, thanks primarily to a huge upward seasonal adjustment. On an unadjusted basis, sales fell 7.5%, bringing the (unadjusted) y/y change down to flat. (See chart below) Of course, this makes for negative real unadjusted sales, but we digress. However, like with the recent non-farm payrolls surprise, topline sales data appears at odds with contemporaneous surveys of consumers and businesses. Most recently, a NY Fed poll found that one in seven respondents doubted their ability to cover minimum debt payments in the next three months. We find it hard to reconcile these contrasting data points. See: Things That Stick Out: Tuesday Edition Perhaps the tell is in the rate market, where skeptical traders are pricing a 25-basis point cut on Nov. 7 at a near certainty. After all, if the economy was as hot as the high-profile jobs and sales reports suggest, why cut at all? See original IGM post here: https://lnkd.in/eeKmqSrM IGM | Informa Connect #interestrates #federalreserve #recession #retailsales #financialmarkets #nonfarmpayrolls