Bloomberg’s recession probability over next 12 months is … 100%.
And how about the Conference Board’s Leading index of 10 economic indicators YoY? Third negative read ALWAYS followed by recession.
The Federal Reserve may be forced to pivot. This may be one reason why the Dow is up 565 points today (+1.86%) as recession and pain become ever more likely.
Look at commercial banks deposits. Wonder why liquidity is drying up?
Pension funds have long been investing in “safe” agency mortgage-backed securities.
But as The Fed does its “tighten up”, we are seeing agency MBS prices falling and duration risk rising.
I remember showing my Fixed-income class at Chicago and George Mason the “MBS doom chart” showing the perils of The Fed pushing rates so low that the risk of rising rates becomes a serious problem when rates start to rise. Well, here we are … after I have retired from teaching.
Note the double whammy of Fed rate increases and the gradual shrinking of The Fed’s balance sheet as The Fed withdraws it ample stimulus. But while The Fed was overstimulating markets, it was quite a rush.
But the rush is gone … for the moment. But “Feddie Krueger” is waiting in the wings to do it all over again!
US core inflation keeps rising and diesel fuel, the life line of the economy, is rising again and is UP 107% under Biden. And the inventory of diesel fuel is DOWN -35.2%.
Speaking of the end of the world, NAHB foot traffic has collapsed.
The US 30yr Mortgage rate just hit a new high since 2000 as The Federal Reserve counterattacks the highest core inflation rate (6.60%) since 1982.
According to the Taylor Rule (which The Fed has chosen to ignore), a 6.60% core inflation rate implied a Fed target rate of 12.40%. Not likely since Fed Funds Futures data points to …
A maximum target rate of 4.963% at the May 2023 FOMC meeting, significantly lower than the needed rate of 12.40%. The Fed is like the world’s worst bar bouncer.
Rather than accepting blame for the horrific inflation rate crushing the American middle class and low wage workers, Biden is twisting the night away.
The University of Michigan’s consumer sentiment index for housing for October just fell to its lowest level since 1992 as The Fed counterattacks against Bidenflation, causing mortgage interest rates to rise.
Of course, despite slowing home price growth, expensive home prices are really hurting along with expensive rents. But how sustainable are high home prices when REAL average hourly earnings growth is negative??
* Fed Swaps Lean Toward Back-to-Back Three-Quarter-Point Hikes * Hotter-than-expected September inflation data spark shift
(Bloomberg) — The market for wagers on the Federal Reserve’s policy rate is leaning toward pricing back-to-back 75 basis point rate hikes in the next two central bank meetings after consumer prices rose more than forecast in September.
The rate on the November overnight index swap contract rose to 3.86%, more than 75 basis points above the current effective fed funds rate, while the one referring to December climbed to 4.50%. A total of 142 basis points of rate hikes are now priced in for the next two policy meetings, just short of consecutive three-quarter-point hikes.
Prior to the inflation data, OIS markets were leaning toward the central bank cooling the pace of tightening to a 50 basis point move in December. At Wednesday’s close, swaps priced in around 130 basis points of hikes over the remaining of the year, which is equivalent to 55 basis points for December.
The market also priced in a higher eventual peak for the policy rate, with the March 2023 contract touching 4.864%.
The CPI data was “clearly a shock for the markets and the markets are off because of it,” Seth Carpenter, chief global economist at Morgan Stanley said on Bloomberg television. “There is persistence, particularly in the services side of inflation.”
Excluding food and energy, the Consumer Price Index increased 6.6% from a year ago, the highest level since 1982, Labor Department data showed Thursday. From a month earlier, the core CPI climbed 0.6% for a second straight month.
The Fed has raised its policy rate five times since March, most recently to a range of 3%-3.25% in September, after dropping the lower bound to 0% two years earlier at the onset of the pandemic.
The Fed Funds Futures data is pointing further Fed rate hikes with a turnaround in March 2023.
And with that awful inflation report and the likely Fed counterattack, the two year US Treasury yield has risen to 4.4361%, the highest since The Great Recession and banking crisis.
Fed Fireball! Comin’ at ya!!
Biden and Powell should appear on Saturday Night Live as the joint Debbie Downer. Or Democrat Downer.
The US Producer Price Index (Final Demand) printed at a higher than expected 8.5% YoY, throwing cold water on the notion that inflation is “transitory.”
A key US inflation measure due Thursday is set to return to a four-decade high, underscoring broad and elevated price pressures that are pushing the Federal Reserve toward yet another large interest-rate hike next month.
The so-called core consumer price index that excludes food and energy is projected to rise 0.4% in September from the prior month and 6.5% from a year earlier, matching the rate seen in March that was the highest since 1982.
The overall CPI, however, is expected to decelerate to a still-rapid 8.1% annual pace, restrained by a decline in gasoline prices, based on the median estimate.
I feel like I am living in the horror movie “Saw”. The Federal Reserve is tightening their BIG green bag of money to fight inflation … caused by Biden’s energy policies and massive Federal government spending.
(Bloomberg) Stocks fell, pressured by rising Treasury yields and signs that company earnings were set to disappoint. A gauge of the dollar climbed to the highest this month.
European shares declined for a fifth straight session as bond yields jumped amid concerns of persistently high inflation as well as the impact of hawkish central bank policies on global growth. The Stoxx Europe 600 Index dropped 0.6%, with futures on the S&P 500 down by about the same magnitude, pointing to another risk-off day on Wall Street.
The mood is fragile ahead of Thursday’s US inflation data, with the case for another 75 basis-point rate hike likely to be strong if the reading comes in higher than than forecast. Fed officials until now show little sign they are in a mood to pause the rate-hiking cycle despite the potential hit to economic growth.
As The Fed tightens, the MSCI Global Technology index had the worst month since October 2008.
And the NASDAQ Composite index continues to fall with Fed removal of money. Hold on to your lugnuts! Because The Fed hasn’t stopped tightening.
Both ARKK and PayPal have gotten clipped by The Fed too.
Another casualty of The Fed’s tightening and reduction in M2 Money supply are … the mortgage and housing markets. The US mortgage rate has soared to 7.04% (highest since 2000) and mortgage DEMAND has fallen to the lowest level in recorded history.
Here is my chart from yesterday showing the inversion of the US Treasury 10yr-2yr curve and decline in the S&P 500 index as The Fed tightens.
And then we have this chart showing the most-extreme foreign Treasury outflow since March 2020.
At least The Fed is predicted to start cutting rates again in March 2020.
Yes, Biden and Powell have reenacted Kevin’s famous chili spill. And Ben Bernanke, the creator of QE from late 2008 was just award the Nobel Prize in economics for distorting financial markets.
Sweet home DC! At least for the ruling elites. For the rest of us mortals, Bidenflation is crushing our finances.
To combat Bidenflation, The Fed has signaled that they will continue to raise interest rates. But at what cost?
(Bloomberg) — The world’s leading central banks are finally pushing their interest rates into restrictive territory, causing fears of overkill in financial markets and stoking chatter that policymakers may need to pivot at some point.
And with the withdrawal of monetary stimulus comes the slowdown of US M2 Money growth (green line). And with that slowdown, we see a declining stock market and an inverted US Treasury yield curve.
Of course, Biden could reverse his green energy agenda and allow for oil and natural gas exploration … again. Or begin building nuclear power plants again. But nooooo.
Another peril is rising mortgage rates.
Here is the S&P 500 against global liquidity.
Speaking of Freddie King, here is Joe Biden’s favorite song: hideaway.
Confounded Interest - Anthony B. Sanders 
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