Good Thursday AM,
The bond rally continues. From a purely technical point of view, the ten year is poised to drop and test 3.88%, currently at 3.95 down from 4.31 earlier THIS WEEK (this amount of volatility is insane). This is a first-level Fibonacci correction 😊. Mortgage bonds are up another 50bps. Dow is up, S&P flat, Nasdaq down, Crypto down, dollar up. The shocker today was GDP, but even more than the actual number is the crazy bullish reaction from bonds.
I am guessing that Nominal GDP is not pretty.
The GDP number released this morning is not adjusted for inflation. Back out inflation, and we likely do not have a great GDP number. Durable orders were hammered, not in the east surprised as people are just going to spend, less. It does make you wonder how GDP can be up when retail sales and Durable orders are suffering. Technically this rally has legs, but tomorrow the PCE numbers are released, and if they come in hot, one would expect a bad reaction from bonds. That said, perhaps it’s opposite week.
Great comment from Elliott Eisenberg to explain the correlation between inflation and rising rates:
The problem facing the Fed is that monetary policy works with long and variable lags. The IMF reports that rate changes have peak impact on GDP after a year, but on inflation after 3-4 years. Other recent research pegs peak inflation impact in developed nations at 2-4 years. This suggests that Fed difficulties are just starting. They will soon slow and then stop hiking rates, yet inflation will remain elevated.
Short and sweet today.
Please remain safe and stay healthy, make today great!