Good Wednesday AM (the best day of the week),
I am going to leave most of today’s commentary to Dan Rawitch who writes like he speaks…
On point but also kind of funny to read (I edited some of it). The current narrative goes something like.. forget the economy for the moment as its already clear it is slowing quickly. Now what happens as the deficit grows and the government needs to issue more bonds to fund the debt. The banks can’t really be buyers since they are getting hammered over bond holdings so who is stepping in to buy the bonds? With no one jumping in rates, are only going to head in one direction. That narrative will change, fingers crossed for everyone it will be soon.
So we had kind of an interesting news morning.
I’ll tell you, the most notable thing was the ADP jobs report. Unbelievably horrible. 89,000 jobs. That’s just really bad. Now lately there hasn’t been quite the coupling with the non-farm payrolls as there historically has been, but let me tell you if the non-farm payrolls come in anywhere near that ADP number, which they won’t because they can be manipulated. But if they did we would really see a good bounce back in bonds. Meanwhile, we’re sitting here at 4.73%. We’ve been as high as 4.80, there’s no real resistance until 4.90. And that goes back to 2006. The RSI, which is relative strength indicator is in the overbought territory. Anything over 70 is overbought. And this is 74.5 which means, you know, a reversal is likely imminent. Mortgage Bonds have been a disaster but a little bit better today. Look, those payroll numbers real quickly. The only thing that isn’t helping us here today is factory orders. Market was looking for three tenths. We got one in 1.2. Now that’s not a huge significance because the number shows up in many other places. So, it’s not too much of a surprise. It’s a little bit better. The ISM services index, now called non-manufacturing for whatever reason, came in a little less than expected and about one point less than last month. This is more bond friendly than not, but that ADP number just kind of shadows everything. So tomorrow is pretty much nothing. Just the job was claimed numbers and then Friday is just a huge, huge, huge, huge number. And if these payroll numbers come in, anything like the ADP, like I said, we’ll see one heck of a rally. All right, guys, that’s all I’ve got.
Two quick hits from the WSJ…
A sudden surge in long-term interest rates to 16-year highs is threatening hopes for an economic soft landing. The Federal Reserve has been raising short-term rates for 1½ years. Those increases are designed to push up longer-term bond yields, combating inflation by slowing the economy. But the speed of the latest jump might be a case of “be careful what you wish for.” It comes as inflation has eased and the Fed has signaled it is nearly done lifting rates. Yields on the 10-year Treasury note rose Tuesday to the highest level since the subprime mortgage crisis began in August 2007.
If the recent climb in borrowing costs—along with the accompanying slump in stock prices and the stronger dollar—is sustained, that could meaningfully slow the U.S. and global economies over the next year. The swiftness of the recent rise also increases the risk of financial-market breakdowns. The likeliest causes appear to be a combination of expectations of better U.S. growth and concern that huge federal deficits are pressuring investors’ capacity to absorb so much debt.
Please remain safe and healthy, make today great!