Treasury Curve Points to Renewed Worries on Fed-Driven Recession (Yield Curve Approaching Recent Inversion Peak Reached In March)

61% of Bloomberg terminal respondents (including me, by the way) see Fed hikes leading to recession.

Bond traders are stepping up wagers that the Federal Reserve will steer the US economy into a recession.

Policy-sensitive front-end Treasuries led a selloff Thursday, while longer-date bonds lagged, a day after Fed officials indicated that they’re prepared to raise interest rates by another half-point this year following the first pause in the central bank’s 15-month hiking campaign. That sent the yield-curve inversion, as measured by the gap between two- and 10-year securities, to 95 basis points — a level last sustained in March — and approaching this cycle’s 109-basis-point extreme.

The price action suggests bond traders are skeptical that policymakers can avoid a so-called hard landing as they continue to press the case for higher borrowing costs in an effort to get a handle on inflation that remains more than double their 2% target.

“The Fed runs the risk of solving one policy error of being too easy for too long with another policy error as they ignore the growing credit contraction and persistent losses from higher rates,” said George Goncalves, head of US macro strategy at MUFG. “The catch-22 is that for them to ease, something now has to break or the economy has to crack.”

It’s not just bond traders who are growing concerned.

Sixty-one percent of respondents in a Bloomberg poll of terminal users conducted in the hours after the Federal Open Market Committee decision said tighter monetary policy will ultimately cause a recession at some point in the next year.

“The Fed was clearly trying to send a hawkish message that they are not quite done yet and don’t think they have made enough progress on inflation,” said Michael Cudzil, portfolio manager at Pacific Investment Management Co. “You see curve flattening and rates not pricing in the full extent of hikes, so the thinking is that these hikes may bite and the Fed is closer to the end.”

Officials left their target range for the federal funds rate unchanged at 5% to 5.25% Wednesday, but projected the key rate will rise to 5.6% by the end of this year, implying two more quarter-point increases, up from 5.1% in March. They also revised higher estimates of core inflation for year-end to 3.9%, from 3.6%, owing to what Chair Jerome Powell called surprisingly persistent price pressures.

Still, markets aren’t convinced borrowing costs will rise as high as central bankers project.

The highest rate on swap contracts for future meetings by early Thursday was around 5.32% for both September and November, with July at 5.27%, compared to a current Fed effective rate of 5.08.

The Fed’s aggressive outlook for rate hikes through year-end may be an effort to dash bond-market expectations for cuts in the months ahead, according to Michael de Pass, global head of linear rates at Citadel Securities.

While The Fed paused at their recent FOMC meeting, they are expected to raise their target rate at the July meeting …. then stop. Despite being only a little over 50% of where they should be (10.12%) to cool inflation.

NOT Always Sunny! Philly Fed Business Outlook Falls To -13.7 As Retail Sales Surprise To The Upside (1 Hike Expected At July FOMC Meeting)

Now that I know that the US is building a railroad from the Pacific Coast to the Indian Ocean (according to Resident Joe Negan), I feel so much better. /sarc

On the other hand, The Philadelphia Fed’s Business Outlook index for June fell to -13.7.

On the positive side, retail sales surprised to the upside which would ordinarily trigger more rate hikes from The Fed. +0,3% MoM in May versus -0.2% MoM expected.

Now Fed Funds Futures are pointing to a rate hike at the July FOMC meeting.

Of course, Biden just had his primary opponent in the 2024 Presidential election and charged with document mishandling.

Biden’s Mortgage Market! Mortgage Demand Rises 7.2% In Latest MBA Mortgage Application Print, But Still Purchase Demand Still Down 27% YoY And Refi Demand Down 41% YoY

The Fed will annouce a pause at today’s FOMC meeting, so don’t look for mortgage rates to do much today.

Mortgage applications increased 7.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 9, 2023.

The Market Composite Index, a measure of mortgage loan application volume, increased 7.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 18 percent compared with the previous week. The Refinance Index increased 6 percent from the previous week and was 41 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 8 percent from one week earlier. The unadjusted Purchase Index increased 17 percent compared with the previous week and was 27 percent lower than the same week one year ago.

Mortgage rates declined for the second straight week, with the 30-year fixed rate decreasing to 6.77 percent. Mortgage applications were up over the week, but remained well below levels from a year ago.

Joe Biden’s new nickname is “The 5 Million Dollar Bribe Man.” Sort of like Steve Austin.

US Food Prices Are Still Up 8.2% Online (Rent Is Up 8.1% YoY As Americans Pay A Stiff Inflation Tax For Biden/Congress Spending Spree And Fed’s Monetary Stimulypto)

Tomorrow is the Federal government’s inflation report. As it stands today, overall inflation is slowing as M2 Money growth crashed. Core inflation remains persisitently high (white line), rent is still getting worse (orange dotted line at 8.1% YoY. What about food? Online food prices are up 8.2% YoY.

Shopping online is a good place to find cheaper computers and appliances, but grocery prices are still rising at a fast clip. 

Prices of consumer goods sold online fell 2.3% in May in the US, the ninth consecutive month of declines and the biggest drop since the pandemic started, according to data from Adobe Inc. That was mainly due to steep decreases in discretionary categories.

Essential items like food, pet products and personal care, however, are seeing persistent inflation. Online grocery prices increased 8.2% from last year — although the pace of inflation has been abating since peaking at 14.3% last September.

Americans have been shifting more of their discretionary purchases to services over the past year, cutting spending on items for the home.

Online prices for appliances were down 7.9% in May from last year, the largest drop in digital-prices data from Adobe going back to 2014. Online prices for computers slumped 16.5% and electronics were down 12%.

The Adobe Digital Price Index was developed with the help of Austan Goolsbee before he became president of the Federal Reserve Bank of Chicago this year. The gauge analyzes one trillion visits to retail sites and more than 100 million items to track price changes.

Yes, Biden and Congress have levied a devastating tax on Americans. Rent and food are two of the largest household expenditures and they are up 8.1-8.,2% YoY.

Foul Powell On The Prowl! Fed Is Set to Pause and Assess the Effect of Rate Hikes, Bull Market Ahead! (US Inflation Seen Staying Elevated)

Foul Powell on the Prowl!

Federal Reserve policymakers are about to take their first break from an interest-rate hiking campaign that started 15 months ago, even as they confront a resilient US economy and persistent inflation.

The Federal Open Market Committee on Wednesday is expected to maintain its benchmark lending rate at the 5%-5.25% range, marking the first skip after 10 consecutive increases going back to March of last year. While officials’ efforts have helped to reduce price pressures in the US economy, inflation remains well above their goal. 

Source: Bureau of Labor Statistics, Bloomberg

Investors’ focus will be on the Fed’s quarterly dot plot in its Summary of Economic Projections, which is expected to show the policy benchmark rate at 5.1% at the end of 2023. 

By contrast, markets are pricing in the possibility of a quarter-point hike in July followed by a similar-sized cut by December, and some Fed policymakers have emphasized that a pause in the hiking cycle shouldn’t be seen as the final increase. 

Fed Chair Jerome Powell, who’ll hold a press conference after the meeting, has suggested he favors a break from hiking to assess the impact both of past moves and of recent banking failures on credit conditions and the economy. His commentary will be scrutinized for hints of the committee.

Remember, there is still over $8 TRILLION in Fed assets held sloshing around the economy. The Fed never really removed the excess liquidity and it continues to stoke asset bubbles.

Bear in mind that The Fed is pausing at 5.25% Fed Target Rate, while the Taylor Rule suggests rate hikes to 10.12%. So, Foul Powell is pausing at just over the half way mark.

Of course, Biden’s and Congress’ massive spending spree is causing inflation, and The Fed has no control over Biden/Congress irresponsible spending.

Welcome To The United Banana Republics Of America! US Debt At $31.8 TRILLION And Growing Fast, Unfunded Liabiliities At $188 TRILLION, Personal Taxes Will Be Rising To Pay For This Outrageous Spending Splurge

Nicolas Maduro of Venezuela must be envious of Joe Biden. I don’t think even Maduro has the stones to have his politiical opponent charged with espionage in the run-up to a Presidential election. Particularly when the US President has been bribed by China and Ukraine and has similiar sensitive document hoarding issues (at least Trump didn’t leave boxes of sensitive documents in a garage like Biden did when he keeps his Chevy Corvette).

So where do we sit today after Biden has signed the debt ceiling increase and massive spending splurge?

First, look at the crashing bank deposit problem. Well, the solution is for The Fed to fire up the money printing press! Keep on printing!

My former colleague at Deutsche Bank, Joe Carson, has a nice writeup entitled “Long-Run Effects of Budget/Debt Deal Are Not Investor-Friendly: Higher Rates and Taxes Are Coming.” Carsons shows that taxes will indeed be going up. And the tax burden is being shifted towards individuals.

And away from corporations.

This not surprising if you have read Nobel Laureate George Stigler’s treastise on regulatory capture. Essentially, big corporations (big media, big tech, big banking, big pharma, big defense, big agriculture, etc.) essentially own Congress, the Biden Administration and Federal regulators. After all, Biden has been bribed with millions of dollars by China and Ukraine and, like a Banana Republic, has is avoiding prosecution and instead prosecuting his political opponent, Trump. Don’t worry, if they get Trump that will indict DeSantis for something.

US debt stands at $31.8 TRILLION with $188 TRILLION in unfunded liabilities (which means higher personal taxes and much more debt).

Babylon Bee: ‘The U.S. Is Not A Banana Republic,’ Says Biden While Showing Off Cool New Uniform

The Fed And The Death Of Market Volatility, Bank Deposits Continue To Dwindle (VIX Down To 13.50)

The Federal Reserve doesn’t care if market volatility has collapsed, even though volaltility is necessary for a well-functioning capital market.

The VIX, volatility of the CBOE S&P 500 index, has declined to 13.5 as The Fed continues to slow M2 Money growth.

And with M2 money withrawal, so goes bank deposits.

Is Jerome Powell actually Uncle Limelight?

Fed Inferno! Is The Federal Reserve Actually The US Economy? Or Is The Fed The DNC De Facto Treasury?? (M2 Money UP 167% Since Nov ’08)

Fed inferno!

One has to wonder about The Feral Reserve. Since The Great Recession of 2008, The Federal Reserve has printed a staggering amount of money (know as QE). There is still about $8.3 TRILLION in monetary stimulus sloshing around the economy.

And M2 Money printing is up 167% since November 2008.

So, despite the talking heads from The Fed and CNBC, etc blathering about Fed tightening, there remains over $8 TRILLION in monetary stimulus chasing asset prices.

Is The Fed ACTUALLY the US economy? Or is The Fed the financing arm of the Democrat party?

Yes, The Fed looks like they are pausing .. rate hikes.

Walk Away Conrad! Fitch Downgrades REIT Sector To ‘Deteriorating’ As REITs Underperform S&P 500 Index (SF Hilton/Park 55 Hotels Owner Walk Away From Payments)

Like the song “Walk away Renee,” the owners for the San Francisco Union Square Hilton and Park 55 Hotels are walking away from their sizeable loan payments. San Francisco is definitely feeling the blues.

But it isn’t just San Francisco. Phil Hall reports that Fitch Ratings reduced its 2023 outlook for the U.S. real estate investment trust (REIT) sector outlook from “Neutral” to “Deteriorating,” citing the tumult in the commercial real estate space.

While Fitch noted that most of its rated REITs “have the capacity to withstand such a slowdown within rating sensitivities [and] those with ample dry powder could capitalize on distressed property sales by weaker capitalized players.” But at the same time, the ratings agency warned that banks – which account for nearly half of the $5.5 trillion commercial mortgage market – saw their lending levels drop by 20% between February and April, with more tightening expected.

“At minimum, this will lead to further contractions in CRE credit, further limiting conditions for property transactions,” Fitch added in its announcement of the outlook reduction, adding that “CRE transaction volume has steadily declined since early 2022 due to the confluence of operating fundamentals pressure, higher interest and capitalization rates, limited buyer financing, and looming recession risk. The rapid jump in rates has resulted in unusually wide value discrepancies between buyers and sellers across most property types and markets, particularly in the struggling office sector. Our forward-looking U.S. equity REIT ratings incorporate assumptions about future property disposition volumes and valuations.”

Fitch predicted the U.S. economy will go into a recession, most likely late in the year – a previous forecast put the downturn at mid-year – and forecasted property performances will vary by sector over the next two years.

“Sectors experiencing strong fundamentals, such as industrial and shopping centers, will likely see some cooling in demand, with tenants showing greater reluctance to lease space, including delaying decisions, resulting in less pricing power for landlords,” Fitch continued. “Tighter lending conditions and weaker economic growth will add to the secular pressures facing some property formats (e.g. office, enclosed malls). The office REIT sector has met, or modestly underperformed, our low expectations during 2023. Leasing volumes have generally underperformed as occupiers add the business cycle to the list concerns and reasons for conservatism, along with secular pressure from remote work. Conversely, the industrial sector, although no longer white hot, continues to deliver above average occupancies and outsized rent growth that have modestly exceeded our projections.”

While Fitch stressed that REITs were “unlikely to directly encounter meaningful stress” based on the recent problems in the banking industry, although it also acknowledged that it did not expect “REITs’ access to unsecured revolvers will be impeded, although facilities up for renewal will likely see higher pricing and some banks have reduced appetites for traditional bank syndicate activities, such as making funded term loans – particularly in hard hit sectors, such as office. We also do not expect meaningful portfolio vacancies caused by bank tenant failures, which are unlikely to be widespread.”

The NAREIT All-equity index has gotten pummelled by the S&P 500 index since The Fed started tightening monetary policy to fight inflation …. that The Fed helped cause in the first place.

Under Biden, the US is beginning to morph into a lawless Socialist sewer like Venezuela. Joe Maduro??

Simply Irresponsible! Biden Signs Grossly Irresponsible Debt Ceiling Hike/Budget As Cryptos Demolished (Bitcoin Down -6%)

Simply irresponsible. Biden’s budget that is!

Biden signed the debt ceiling bill craftted by McCarthy (RINO-CA) and Schumer (Communist-NY). Its allows for uncontrolled spending and borrowing for at least 2 years. And as Milton Friedman once said “There is nothing more permanent than a temorary Federal program … or debt limitiations.

With Biden signaling that government has gone wild with no controls on fiscal responsibility (and Elizabeth Warren flailing her arms and screaming for regulations on cryptocurrencies), cryptos today are getting demolished.

China, Japan and the BRICs realize that there are no controls on ANYTHING coming out of Washington DC. Insane spending, an insane Federal Reserve, corrupt DOJ and FBI.

Doctor, doctor (Yellen), we’ve got a bad case of Federal corruption.