A big week for central banks begins with yields up 2-3bps, the 2Y at 5.06% and 10Y at 4.34%, approaching or touching the highs of the year as the continued rise in oil prices and am markets continue to digest last week's inflation data. On the week ahead we have 3 major central bank decisions, Wednesday's FOMC, Thursday's BoE and Friday's BoJ. Of most interest stateside is the FOMC meeting. It is a near certainty the Fed will hold policy rates, so markets will focus on clues as to whether another hike is likely in November and how the FOMC revises their Summary of Economic Projections (aka the "dots").
The UAW strike, possible government shutdown, rise of oil on production cuts, the weakness in Chinese real estate, the ongoing war in Ukraine, etc. all add to economic uncertainty.
Today: NAHB (Housing market index)
Tuesday: Housing Starts & Permits
Wednesday: FOMC
Thursday: BoE, Jobless claims, Philly fed, Existing Home Sales, Leading indicators
Friday: Markit Flash PMIs, BoJ
XTOD: I'm the qualitative guy, not the quantitative guy, and I've been spending the last two months collecting stories and anecdotes on how the economy is croaking. I have 4,000+ subscribers to TDD, from a range of industries, and they're all saying the same thing: look out below. ....This data is near real-time--I get it before the Fed gets it when it ends up in the Beige Book. And it's all saying the same thing: a recession is coming. The easiest way to play it is in the front end of the curve. The Fed will cut in the next 6-9 months. There isn't much danger of short rates going materially higher, so you can easily build a position in 2s, 3s, or 5s and wait for the poison to take effect. When the Fed cuts, they won't cut 50 or 100bps. They will cut 300 or more.
XTOD: Why can't we shake the gloom? It's more than inflation or higher prices. What should be good news for people seems to be falling flat, even relative to prior times with high inflation....In closing. If it's not inflation, where is the extra gloom coming from? The pandemic and its aftermath fit the timing and the severity—to say nothing of the total lack of precedent—that could explain why sentiment is lower than expected. I explain in my piece:... It doesn’t require everyone to still talk about or even think about Covid-19. The pandemic and our responses to it touched all our lives somehow. Concerns about high prices almost always refer back to pre-pandemic. It is a salient touch point, and one that has stuck around. Supply chains aren’t fully back to normal. Why would you expect people’s views on the economy to be? It is important to understand what ushered in the extra gloom. If you want to play the blame game, blame Covid.
XTOD: An inflation update: in the past I've focused on a measure that excludes lagging shelter and used cars as well as food and energy. Just to note that it adds to the evidence that inflation has been largely defeated
XTOD: High gas prices are apparently both the cause of and the cure for inflation. Never reason from a price change.
XTOD: FWIW - I don't think it is at all a coincidence that the worker strikes and unionization movements all seem to arise with non-work-from-home employees. The sense of powerlessness and uncertainty they experienced was far higher than white collar workers. In their eyes, they experienced stacked vulnerabilities while others gained stacked privileges. These strikes aren't just about money, they are about regaining confidence and if that has to happen at the expense of the confidence of management and shareholders so be it.
XTOD: I fully agree with Christian Lindner who says: “The capital markets do not distinguish between the noble or less noble motives for which debt is incurred and what it is invested in. They simply judge whether is it sustainable or not sustainable.” A strong case for the use of DSA
XTOD: There are three primary reasons why the U.S. may be unprepared to win a war against China over Taiwan: 1. Domestic Fragmentation 2. The War in Ukraine 3. Lack of Industrial Readiness
XTOD: America's bagel chains are complete trash. Einstein's, Noah's, and Dunkin' Donuts produce some of the worst tasting bagels (and coffee) you can buy. Someone needs to build the next great bagel chain and put all of these f*ckers out of business
Links to X/Tweets in order
https://x.com/dailydirtnap/status/1703021941387358251?s=20
https://x.com/Claudia_Sahm/status/1703539134273384913?s=20
https://x.com/paulkrugman/status/1702658724832145412?s=20
https://x.com/RebelEconProf/status/1702659769830383786?s=20
https://x.com/Peter_Atwater/status/1703525593541648474?s=20
https://x.com/ojblanchard1/status/1702776734716723305?s=20
https://x.com/kofinas/status/1703529400984055902?s=20
https://x.com/anothercohen/status/1702342309075890363?s=20
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