19 nations now have inverted 10yr-2yr yield curves.
And housing inventory for sale growth is soaring out West and in Tennessee?
At least Ohio is seeing a modest increase in housing inventory for sale.
On a parting note (before I watch the Ohio State Buckeyes annihilate the Rutgers Scarlet Knights tomorrow at 3pm EST, reverse repos parked overnight at The Fed just hit an all-time high. Apparently, banks don’t believe Janet Yellen’s inflation is transitory mumbo-jumbo.
Fire! European stock valuations have dropped to lowest since 2012.
The US Dollar index is soaring (not helping Europe) as The Federal Reserve tightens monetary policy to combat the inflation fire.
Meanwhile, the Atlanta Fed’s GDPNow real-time forecast for Q3 is at least above zero (barely) at 0.271%.
Fed officials continued to hammer home the central bank’s hawkish outlook, with Atlanta President Raphael Bostic saying he backs raising rates by a further 1.25 percentage points by the end of this year. Meanwhile, the People’s Bank of China said it will accelerate usage of targeted loans.
Banks get to park money at The Federal Reserve overnight in the form of repurchase agreements (or repos). But as inflation is raging in the US, banks have parked a record $2.366 TRILLION at The Federal Reserve.
The MOVE bond volatility index keeps rising as inflation roars and The Fed fights back,
The US bond volatility index is now almost as high as during the Covid Crisis and approaching financial crisis levels.
My former home, Phoenix AZ, finally is no longer the fastest growing metro area in terms of home prices, relinquishing the crown to Miami and Tampa FL.
It almost seems that people are trying to escape the mess Gavin Newsome made in California and are escaping to Arizona, Nevada, Florida and Texas. But note that all 20 metro areas are positive in growth YoY, but 12 of the top 20 metro areas experienced NEGATIVE growth from June to July.
Any questions as to whether The Fed is killing the housing and mortgage markets??
On a different note, we see all hell breaking out in Great Britain. Like the US, Great Britain’s inflation is off the charts and the Bank of England is scared about the Pound getting pounded with BofE tightening.
Is FLA governor Ron DeSantis actually Snake Pliskin??
And I thought the Washington Commanders QB Carson Wentz getting sacked nine times in a game against his former team was bad!
We start the week with another chapter of “The Worst Bond Bubble Burst Since 1949.” This time its the US Treasury 10yr-2yr yield curve inverted to its lowest level since 2000.
Then across the pond, the UK sovereign yield curve is also inverted. But this curve is only inverted to 2008 levels of The Great Recession. The UK 2-year sovereign yield is up over 50 basis points this morning.
Then we have the US Dollar Swaps curve (green line), steeply UPWARD sloping until 6 months, then declining. The same goes for the US Treasury Actives curve (blue line), except that is it steeply upward sloping out to 1 year then begins declining.
And then we have the Bankrate 30-year mortgage rate rising to 6.59%, up 129% since Biden was sworn-in as President.
Also declining since Powell unleashed his monetary Panzers on the economy and financial markets are 1) agency MBS and 2) S&P 500 index.
The stock market’s value is down $7.6 trillion since Biden took office.
When I saw Carson Wentz of the Washington Commanders getting sacked 9 times, I thought maybe Prince Harry was playing instead. Or maybe Meghan Markle.
Price Harry is on the left, Commanders QB Carson Wentz is on the right.
It was not immediately clear why buyers had submitted requests for capacity when Russia has given no indication since it shut the line that it would restart any time soon.
Russia, which had supplied about 40% of the European Union’s gas before the Ukraine conflict, has said it closed the pipeline because Western sanctions hindered operations. European politicians say that is a pretext and accuse Moscow of using energy as a weapon.
But German inflation, using CPI, is only 7.9%. Something has to give!
On the western front (US), the US Treasury 10yr yield is up +10.2 bps. And sovereign yields in Europe are all above 10 bps.
Inflation is stubborn because “goin’ green!” by 1) restricting US fossil fuel production and exploration and 2) Biden/Congress endless spending splurge since Covid. So, The Federal Reserve has a tough problem: cooling inflation while US energy prices are up 54% under Biden. And those higher energy prices have percolated through the entire economy in terms of food prices and heating prices.
Where do we sit? The US Treasury 10yr-2yr yield curve remains inverted (a sign of impending recession). Mortgage rates are the highest in 14 years as The Fed tightens.
If we look at Fed Funds Futures data, we can see that traders expect The Fed’s target rate to rise to 4.395% by March 2023’s FOMC meeting. Then traders expect The Fed to take their enormous foot off the tightening pedal.
Yes, inflation is crushing the middle class and low-wage workers. Average hourly earnings YoY after we subtract inflation are negative.
Taylor Rule? Currently, the Taylor Rule based on Core inflation of 4.56% YoY suggests a Fed target rate of 9.14%. Since traders anticipate the target rate to peak at 4.395%, The Fed will almost be halfway towards cooling inflation.
The problem is … Fed Chair Powell and Treasury Secretary Yellen don’t like rules limiting their “power.” Powell and Yellen think the Taylor Rule is a New Jersey ham product.
Its a beautiful morning here in Columbus Ohio! Unfortunately, things are not so beautiful for the US economy.
Let’s begin with the US Treasury 10yr-2yr yield curve slope. Historically, the yield curve inverts prior to a recession. As of this sunny morning, the US Treasury yield curve is inverted and sinking further into inversion. Notice that headline inflation (blue line) has increased declined slightly after hitting 40-year highs as The Federal Reserve begins SLOWLY trimming their balance sheet (orange line). The green line is the expectation of Fed rate hikes by the December 2022 FOMC meeting indicating further monetary tightening.
Goldman Sachs Group Inc. cut its US economic growth estimates for 2023 after recently boosting its predictions for Federal Reserve interest rate hikes.
US gross domestic product will increase 1.1% in 2023, economists including Jan Hatzius wrote in a note Friday, compared with a forecast of 1.5% previously. The projection for 2022 was left unchanged at 0%.
Goldman raised its federal funds rate forecast by 75 basis points over the last two weeks for a terminal rate forecast of 4% to 4.25% by the end of 2022.
Then we have Federal Express which plunged -43.85 points on Friday. I use this an example on how inflation begat Fed tightening that begat an economic slowdown.
The Biden Administration is cheering the “Inflation Reduction Act” and the recent decline in the rate of inflation to a gut-wrenching 8.3% YoY. Bear in mind that since Biden was sworn-in as President, WTI Crude Oil is UP 75%, gasoline prices UP 54%, food prices are UP 48% and the Strategic Petroleum Reserve is DOWN -32%.
Then we have Gold and Bitcoin relative to the INVERSE of the US Dollar since Biden was installed as President.
The Philadelphia Fed Business Outlook fell almost -10% in September as The Federal Reserve tightens monetary policy.
On a related note, the share of total net worth held by the bottom 50% in the US (red line) was always higher than the share of total net worth held by the top 1% (blue line) … until The Federal Reserve began QE in late 2008. Under Obama, the top 1% surpassed the bottom 50% in terms of share of total net worth. it equalized under Trump and before Covid. Then the massive QE (and surge in Federal spending) to battle Covid seemingly made the rich even richer and the bottom 50% even poorer. This is Biden’s America … massive Federal subsidies to the wealthy, crumbs for the bottom 50%.