WTI Crude Oil spot price was up 91% from the beginning of 2021 to the Russian invasion of Ukraine. Now it is up 142% thanks to the invasion of Ukraine.
Energy prices are still soaring with UK Natural Gas prices up another 34.70% today with Brent Crude futures up 3.34%. Wheat futures are up 7.03%.
The US Treasury 10Y yield rose 6.8 bps this morning (UK takes the lead with a 10.3 bps increase).
The US Treasury 10Y-2Y yield curve slope continues to swoon to where it is now flatter than when President Biden entered office.
Gold is now at it highest level since before Biden was sworn-in as President as WTI Crude Oil soars.
Gold hit $2,000 before retreating back down.
And Bankrate’s 30Y mortgage rate declined to 4.10%.
Russia is the world’s largest exporters of wheat and Ukraine is the 5th largest exporter.
This has been a brutal week for consumers. With the Russia/Ukraine conflict raging and Congress seems determined to not allow for additional oil and gas production, and Biden’s anti-fossil fuel edicts still in place, we are seeing dramatic price increases in wheat (UP 89.5% since January 1, 2021), WTI Crude (UP 143% since January 1, 2021), and food stuffs (UP 55% since January 1, 2021).
Bankrate’s 30-year mortgage rate has actually been falling the last several days, which is good for prospective home buyers as the 10-year US Treasury Note yield has been declining.
The USD/Russian Ruble cross is skyrocketing and the USD/Euro is doing likewise. Russians visiting the US will find that their trip is suddenly unaffordable (as do many American citizens will its rampant inflation). As Bruce Willis said in “Die Hard,” “Welcome to the party, pal.”
On Friday, the US Treasury 10-year yield declined 11 bps.
And energy prices continue to soar, particularly UK Natural Gas Futures that rose 19.85% overnight.
The US inflation data will be released on March 10th and the consensus is that February CPI inflation will rise to 7.9% YoY.
But even the latest unemployment rate report (3.8%) is signalling that The Fed should be raising interest rates since it is lower than the Natural Rate of Unemployment or NAIRU (4.44%).
And we have the next Fed policy error on March 16th. The Fed dots plot looks like the glide slope for an aircraft, but the message is that rates will be going up at future meetings.
And just for amusement, I present to you the infamous Hindenburg Omen chart that forecast the 2008/2009 stock market correction. Since that correction, the Hindenburg Omen has been flashing “danger” but the only correction was the COVID-linked correction of early 2020. While the Hindenburg Omen is flashing red right now, The Federal Reserve’s balance sheet (green line) has protected against market corrections. Let’s see what happens if and when The Fed decides to remove the epic monetary stimulus.
Its anyone’s guess as to whether The Fed will actually tighten monetary policy.
Well, the COVID hysteria from the Biden Administration and the media preparing us for a horrible jobs report was … incorrect. In fact, the January jobs report was “exceptional”. 467,000 jobs were added and average hourly earnings growth ROSE to 5.7% YoY.
The bad news? Thanks to surging inflation, REAL average hourly earnings growth YoY FELL to -2.36%.
Unemployment ROSE to 4.0% from 3.9% as more people dropped out of the labor force in January. On the bright side, labor force participation rate rose to 62.2% from 61.9%.
Leisure and hospitality employment (one of the most vulnerable to inflation) expanded by 151,000 in January, reflecting job gains in food services and drinking places (+108,000) and in the accommodation industry (+23,000).
The reaction in the bond market? US 10-year yields are up 6.9 basis points as Eurozone is up across the board.
Energy prices are up (except natural gas futures).
Yes, its a cold one out there. But the Biden Administration is engaging in reducing fossil fuel supply and pushing towards “green” energy such as inefficient solar panels, eagle-killing wind turbines, and ocean turbines.
As a consequence, natural gas futures are up 93% from January 1, 2021 while coal futures are up 133% and WTI Crude spot price is up 82%.
Any wonder why food prices are up 40%?
Stay warm. It’s a cold one out there today. And The Federal government doesn’t care.
Treasury yields rose a second day, with five-year rates hitting the highest since before the pandemic took hold in the U.S., amid increasing conviction that the Federal Reserve will raise rates at least three times beginning in May.
The five-year Treasury note’s yield climbed as much as 3.8 basis points to 1.392%, the highest since Feb. 20, 2020, while 30-year yields bumped up toward their 200-day moving average.
Yields across the curve are rising for a second straight day, after Monday’s selloff lifted the 10-year note’s yield by nearly 12 basis points in its worst start to a year since 2009. The two-year yield topped 0.80% for the first time since March 2020.
At the 10-year mark, we see Canada’s sovereign notes rising 18.7 basis points.
Also at the 10 year mark, we see the US 1-year breakeven inflation rate (red line) surging.
The US Treasury actives curve and Dollar Swaps curve remain steeply upward sloping.
And on the crypto and gold front, gold surged this morning after tanking in the evening, while Ethereum (blue) is doing quite well along with Bitcoin.
My favorite non-bond, non-alt investment chart. The S&P 500 index charted against The Fed’s M2 Money Stock.
Following my friend Jesse’s habit of posting great French food dishes, here is one from my favorite Parisian eatery, Le Duc de Richelieu. Mmmmmmm.
The global economy has certainly been turned on its head by the COVID outbreak in early 2020. Not so much by the virus itself, but by Central Bank hysteria in terms of rate lowering and balance sheet expansion. Which The Fed has not yet unwound.
Let’s look at what has happened since the mini-recession caused by COVID in early 2020. The shortest recession in US history, a measly 2 months. The Fed expanded its balance sheet from $4.17 million in February 2020 to $8.79 million today. That is, The Fed over doubled the size of their balance sheet in reaction to the shortest recession in US history. Overreaction much?
What has happened since the mini-recession and The Fed’s massive overreaction?
First, gold (gold line) surged then calmed down. Then cryptocurrency Bitcoin (while line) surged, then calmed down, then surged again only to calm down again. Then crypto Ethereum surged, calmed, surged, calmed. Meanwhile the US Dollar Index crashed only to start rising again.
The Fed’s overreaction and failure to withdraw excessive stimulus has led to the rise of alternatives to the deflating dollar due to inflation.
When will The Fed ACTUALLY start removing the overreaction stimulus? Let’s get it started.
Perhaps only April Ludgate can kill The Fed’s overreaction stimulus.
The core Personal Consumption Expenditures (PCE) deflator numbers for November were released this morning and the print was a whopping 4.7% YoY, the highest rate since 1989.
Meanwhile, U.S. consumer spending, adjusted for inflation (aka, REAL personal spending), stagnated in November as the fastest price gains in nearly four decades eroded purchasing power. Stagnated to 0.
Purchases of goods and services, after adjusting for higher prices, were little changed following a 0.7% gain in October, Commerce Department figures showed Thursday.
And as Paul Harvey would say, here is the rest of the story.
Core PCE growth YoY of 4.68% implies a Fed Funds target rate of 11.84%. Powell and the gang have the target rate at 0.25%. But the Taylor Rule doesn’t take into account the latest FEAR raging in Washington DC … the Omicron variant. Just another excuse for The Fed to do nothing and let asset bubbles blow out of control.
(Bloomberg) — The amount of money that investors are parking at a major central bank facility climbed to yet another all-time high as supply-demand imbalances continue to dog U.S. dollar funding markets.
Eighty-one participants on Monday placed a total of $1.758 trillion at the Federal Reserve’s overnight reverse repurchase agreement facility, in which counterparties like money-market funds can place cash with the central bank. That surpassed the previous record volume of $1.705 trillion from Dec. 17, New York Fed data show.
Demand for the so-called RRP has climbed further as principal and interest payments from government-sponsored enterprises has entered short-end funding markets. However, that cash is expected to exit the overnight space by the end of the week as the Treasury ramps up its issuance of Treasury bills now that Congress has increased the debt limit.
Overall volume has been rising this year as a flood of cash continues to overwhelm the U.S. dollar funding markets due to central-bank asset purchases and the drawdown of the Treasury’s cash account, which is pushing reserves into the system. The larger takeup looks set to persist even as the Fed tapers its asset-purchase program — something it began this month — because the supply-demand imbalances in short-end securities are likely to persist.
Then we have the Turkish Lira volatility hitting an all-time high.
And finally we have the US Current Account Balance rising to levels last seen in 2006 just after the peak of the US housing bubble.
Like John Belushi from The Blues Brothers, Fed Chair Jerome Powell is saying that the markets lackluster response in terms of bond yields to his “hawkish” announcement yesterday “isn’t his fault.”
(Bloomberg)Federal Reserve boss Jerome Powell appears unperturbed by the fact that longer-term bond yields remain low even as officials lay the ground work for tighter policy and inflation is ticking higher.
While the drop in longer-term rates may be viewed by some as indicative of where so-called terminal rates for U.S. policy might ultimately lie, Powell on Wednesday emphasized the impact of ultra-low yields in places like Japan and Germany in helping to keep them anchored.
“A lot of things go into the long rates and the place I would start is just look at global sovereign yields around the world,” Powell said at a news conference following the Fed’s final scheduled policy meeting for the year, which saw officials ramp up the pace of stimulus withdrawal and boost predictions for rate hikes in 2022. The Fed Chair noted that rates on Japanese and German government bonds are “so much lower” than those on Treasuries and that with currency hedging taken into account American debt provides investors with a higher yield. “I’m not troubled by where the long bond is,” he said.
This stands as something of a contrast to the view expressed back in 2005 by one of Powell’s predecessors. Back then, Fed chief Alan Greenspan described a decline in long-term bond yields even in the face of six policy rate increases as a “conundrum.”
Or it could be that no one REALLY believes that Central Banks will ever cut interest rates, despite surging inflation.
The US Treasury 10-year yield dropped 7 basis points overnight and remains just south of 1.50%. The Eurozone remains below 1% (with Germany at -0.358% and France at -0.009% at the 10-year mark). Japan is at 0.039%. This is what Powell means by low global rates keeping US long-term rates down.
The 10-year Treasury term premium (measured before Powell’s head fake on raising rates) has returned to pre-Biden levels.
Meanwhile, global equities futures are up across the board (well, except for Mexico).
The Fed could have raised their target rate if they were REALLY interested in cooling inflation. The Taylor Rule remains at 14.94% while The Fed is stalled at 0.25%. Even if you don’t like the Taylor Rule, it still highlights how ridiculous Fed Stimulypto is.
Well, we do have a government-propelled economic recovery, but at a cost of declining REAL wages thanks to the highest inflation rate in 40 years.
Confounded Interest - Anthony B. Sanders 
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