Category: ECB

US Treasury 10Y-2Y Yield Curve Normalizes To Jan 2022 Levels, Adjustable Rate Mortgage (ARM) Share Back To Financial Crisis (2008) Levels

The good news? The US Treasury 10Y-2Y yield curve is normalizing to January 2022 levels.

One the mortgage side, adjustable rate mortgage (ARM) share is the highest since the financial crisis (2008).

As Trump continues to stand up for Americans and China (and Democrats) continues to fight, the S&P 500 index lags MSCI World index by most since 1993 (The Clintons).

One can only hope!

The Empire Strikes Out! Business Conditions Expectations Plunged To Lowest Since 9/11

The Emperor is actually China’s Xi Jinping! Causing the Empire Fed Manufacturing index to decline.

Despite the slump in ‘soft’ survey data, analysts expected Empire Fed Manufacturing to bounce back from March’s tumble to one year lows and they were right with the headline index rising from -20.0 to -8.1 (considerably better than the -13.5), but still negative. However, while current conditions jumped, expectations plunged to the lowest since 9/11/.

China Trade Uncertainty Causes VIX To Fall By 18.7 Pts, Largest In History (Correlation Between Stocks And Bonds Reverse To Positive)

Obama/Biden/Harris/Schumer/Pelosi have let the US be the punks for China. Trump is simply trying to level the playing field and China’s Xie doesn’t like the new equilibrium.

VIX Index fell by 18.7 points yesterday … largest one-day decline in history.

The correlation between stock prices and bond yields has returned to positive territory — hinting at a period of distress in equities and a regime shift in equity and bond markets where recession fears, rather than inflation, may be starting to drive direction of both. The correlation between the two asset classes was positive for the better part of 20 years prior to the pandemic, suggesting equities trended in the direction of yields as inflation mostly coincided with growth. Stocks held a negative correlation to yields throughout most of the 1980s and 1990s, when inflation hurt stocks — and that phenomenon returned for the 2022-24 bear market and recovery period.

Notably, major stock corrections occurred each time the correlation jumped out of its primary regime.

China’s Xi flashes a Hitler salute!

Hello Hello! March US Consumer Prices Fall Most In 5 Years (Rent Inflation Back To Pre-Biden Levels)

Hello Hello pre-Biden inflation levels!

The normally crucial consumer price index measure of inflation printing today for March is likely to take a back seat to the next red flashing headline on tariffs on everyone’s Bloomberg terminal, but under the hood – with the Trump Put now exposed – can a cooler than expected CPI print raise the Powell Put strike enough to enable a true tradable bottom here?

Having dipped lower in the previous month (following a few straight months of re-acceleration), expectations were for both headline and core measures to continue trending lower on a YoY basis… and they were.

Headline CPI FELL 0.1% MoM (vs +0.1% exp), which dragged the YoY CPI to +2.4%, matching the September lows…

Source: Bloomberg

That is the weakest MoM print since May 2020.

Core CPI also printed cooler than expected (+0.1% MoM vs +0.3% MoM exp), pulling the YoY print down t0 +2.8% YoY – the lowest since March 2021…

Source: Bloomberg

Services inflation tumbled…

Source: Bloomberg

CPI breakdown:

Headline:

  • CPI decreased 0.1% after rising 0.2% in February, and below the +0.1% estimate. Over the last 12 months, CPI rose 2.4%, below the 2.5% estimate.
  • Energy CPI fell 2.4% in March, as a 6.3% decline in the index for gasoline more than offset increases in the indexes for electricity and natural gas.
  • Food CPI rose 0.4% in March as the food at home index increased 0.5% and the food away from home index rose 0.4 percent over the month.

Core CPI:

  • The index for all items less food and energy rose 0.1% in March, following a 0.2% increase in February.
    • Indexes that increased over the month include personal care, medical care, education, apparel, and new vehicles.
    • The indexes for airline fares, motor vehicle insurance, used cars and trucks, and recreation were among the major indexes that decreased in March.

Core CPI details (MoM increase):

  • The shelter index increased 0.2% over the month.
    • The index for owners’ equivalent rent rose 0.% in March and the index for rent increased 0.3%.
    • The lodging away from home index fell 3.5 percent in March.
  • The personal care index rose 1.0%in March.
  • The index for education rose 0.4% over the month, as did the index for apparel.
  • The new vehicles index also increased over the month, rising 0.1%.
  • The index for airline fares fell 5.3% in March, after declining 4.0% in February.
  • The indexes for motor vehicle insurance, used cars and trucks, and recreation also fell over the month.
  • The household furnishings and operations index was unchanged in March.
  • The medical care index increased 0.2% over the month.
  • The index for hospital services increased 1.1% in March and the index for physicians’ services rose 0.3% over the month. In contrast, the prescription drugs index fell 2.0% in March.

Core CPI details (YoY increase):

  • The index for all items less food and energy rose 2.8 percent over the past 12 months.
  • The shelter index increased 4.0 percent over the last year, the smallest 12-month increase since November 2021.
  • Other indexes with notable increases over the last year include motor vehicle insurance (+7.5 percent), medical care (+2.6 percent), recreation (+1.9 percent), and education (+3.9 percent).

While goods inflation is flat (zero-ish), services cost inflation is fading fast…

Source: Bloomberg

Shelter and Rent inflation is slowing fast:

  • Shelter inflation +0.3% MoM, +3.99% YoY, down from 4.25% in February (lowest since Nov 2021)
  • Rent inflation +0.3% MoM, +3.99% YoY, down from 4.09% in February (lowest since Jan 2022)

The so-called SuperCore CPI – Services Ex-Shelter – dropped 0.1% MoM dragging it down to +3.22% YoY – the lowest since Dec 2021…

Source: Bloomberg

Source: Bloomberg

Drill Baby Drill (and tariffs recession fears) have dragged energy prices lower and pulled CPI lower with it…

Source: Bloomberg

Bubble Or Tariffs? China Retaliates With 84% Tariffs On US Goods, Will The Fed Counterattack? (S&P 500 UP 81% Since April 8, 2020 While M2 Money Is UP 27.4%)

The Federal Reserve has created massive asset bubbles in financial markets. And the “tariff war” between the US and China. Since April 8, 2020, the S&P 500 index is up 81% while The Federal Reserve has printed a staggering amount of money as M2 Money is up 27.4% over the same period.

So, it is not surprising (except to Barstool Sports’ Dave Portnoy) that the stock market has declined with China’s childish petulance over Trump’s tariffs. While Trump levied a 104% tariff on Chinese goods, China counterattacked with a 84% tariff on US goods.

Will The Fed counterattack with more money printing?

Fear! Tariff Fears Are Spooking Markets (China Is Acting Childish)

Markets are ranked by fear about tariffs. Particularly since China is acting like a child.

Bond vs equity fear

Bond volatility has shot up higher, but remains “muted” compared to the VIX move.

Source: Refinitiv

FX vs equity fear

FX volatility has shot up higher as well, but is pale in comparison to the VIX move.

Source: Refinitiv

Credit “crunched”

Credit protection has surged during the “chaos”. Chart shows the US and the European versions.

Source: Refinitiv

Equity vs credit protection

VIX vs CDX IG.

Source: Refinitiv

Europe as well

V2X vs iTraxx main.

Source: Refinitiv

Correlation – the upside crash

Implied correlations showing a lot of “fear” as pretty much everything has been treated as if it were the “same” during the crash.

Source: Refinitiv

Massive

Intraday range was huge during yesterday’s session, but close to close very modest. Imagine trading short gamma….and hedging the extremes.

Source: GS

The Yuan is having a volatile day.

Fear!

DC Follies? Reciprocal Tariffs, The Mag 7, Corporate Yields And Market Corrections (-17.5% Vs -35.4% In 2020)

US tariff policies for the last 50 years represent a folly. Particularly since Presidents Obama and Biden (along with Chuck Schumer and Nancy Pelosi) did nothing to correct the enormous disparity in tariffs. Trump is trying to do something to right the ship before it sinks like The Titanic.

Victor Davis Hanson wrote in the Daily Signal, “China has prohibitive tariffs, so does Vietnam, so does South Korea, so does Japan, so does Mexico, and so does Europe. So do a lot of countries. So does India. But if tariffs are so destructive to their economies, why is China booming?

Why is Canada mad at us when it’s running a $63 billion surplus and it has tariffs on some American products at 250%. Doesn’t it seem like the people who started this asymmetrical—if I could use the word—trade war should be the culpable people, not the people who are reluctantly reacting to it?

Were tariffs leveled against countries that had no tariffs against us?

The US hasn’t run a trade surplus since 1975 or 50 years. So, it wasn’t suddenly we woke up and said, “It’s unfair. We want commercial justice.” No. We’ve been watching this happen. For 50 years it’s been going on. And no president, no administration, no Congress in the past has done anything about it.

In the postwar period, we were so affluent, so powerful—Europe, China, Russia were in shambles—that we had to take up the burdens of reviving the economy by taking great trade deficits. Fifty years later, we have been deindustrialized. And the countries who did this to us, by these unfair and asymmetrical tariffs, did not fall apart. They did not self-destruct. They apparently thought it was in their self-interest. And if anybody calibrates the recent gross domestic product growth of India or Taiwan or South Korea or Japan, they seem to have some logic to it.

There’s a final irony. The people who are warning us most vehemently about this tariff quote the Smoot-Hawley Act of 1930. But remember something, that came after the onset of the Depression—after. The stock market crashed in 1929. That law was not passed until 1930. It was not really amplified until ’31. And here’s the other thing that they were, conveniently, not reminded of: We were running a surplus. That was a preemptive punitive tariff, on our part, against other countries.
We had a trade surplus. And it was not 10% or 20%. Some of the tariffs were 40% and 50%. And again, it happened after the collapse of the stock market.

In conclusion, don’t you find it very ironic that Wall Street is blaming the Trump tariffs for heading us into a recession, if not depression, when the only great depression we’ve ever had was not caused by tariffs but by Wall Street?”

Average reciprocal tariffs could rise to 35%!

The Mag 7 index has gotten crushed under Trump’s tariffs.

Corporate bond yield has soared with Trump’s tariffs.

The market correction thus far is -17.5%, not even close to the worst correction since 2009 (-35.4% in 2020).

US Payrolls Unexpectedly Soar To 228K (Federal Government Employment Lost 4K Jobs)

Most people are focused on the Great Reset in Global Trade, caused by Obama/Biden/Schumer/Pelosi letting US trading partners getting away with massive disparate tariffs against the US. Now that Trump is trying to level the playing field, we will see short-term losses in the stock market. But the jobs report for March shows that Trump’s economic policies are working.

The March jobs report ended up being far stronger than expected, as the US added a whopping 228K jobs, the highest since December and more than double the 117K in February (revised lower from 151K).

The better news? Federal government employment declined by 4,000 in March, following a loss of 11,000 jobs in February.

Soothe Me? Q1 GDP Now At -2.8% As 10Y Treasury Yield Falls To 4.157% (Recession Jitters?)

Soothe me? As we move further away from Sleepy Joe’s horrid economic policies, we should see an improvement in GDP from the current Atlanta Fed GDP Now Q1 Forecast of -2.8%.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.8 percent on March 28, down from -1.8 percent on March 26.

The alternative model forecast, which adjusts for imports and exports of gold as described here, is -0.5 percent. After recent releases from the US Census Bureau and the US Bureau of Economic Analysis, the nowcast of the contribution of net exports to first-quarter real GDP growth declined from -3.95 percentage points to -4.79 percentage points in the standard model and from -1.92 percentage points to -2.53 percentage points in the alternative model.

The US Treasury 10Y yield has fallen to 4.157% as recession fears mount.