Daily Economic Update: October 5, 2023

 

Yields are down another couple of basis points with the 2Y at 5.03% and the 10Y at 4.716% after a reversal of some of their recent bear steepening trend following yesterday's ADP employment data coming in below expectations. The move lower in yields was despite better than expected factory orders and ISM services data showing continued strength in the service sector.  The Kaiser Permanente health care 'temporary' strike became official, adding to a growing list of striking workers in 2023.  European data this morning has shown weakness again in Germany with both exports and imports falling more than expected.  Ahead of tomorrow's Jobs Report, we'll get another look at the job market with initial jobless claims this morning and there will be more Fedspeak.

XTOD: Is the Fed finally getting tighter financial conditions (via a term premium bump)? 

“These types of things often take on a life of their own until they self-correct” through weaker data or “a more sinister mechanism, such as a financial stability scare.”

XTOD: Two implications of the incredible run-up in real interest rates over the last month: 

1. The Fed should have a higher bar to raise rates again--to the degree they have more work to do this is doing some of it. 

2. More deficit reduction would be really helpful right now.

XTOD: The $MOVE is back above 140, time to send the bond market to its room for a time out.  The MOVE @ 140 implies a yield change of ~9bp a day for the next month, that is not sustainable; similar to the VIX near 50, or ~3.1% a day for a month.

XTOD: 5yr TIPs with current real yields at 2.6% will be the most compelling risk-return asset vs cash over the next couple years.  These bonds are offering boom level yields at a time when the economic cycle is softening and recent market moves suggest further softening.

XTOD: Will Michael Lewis's exposure as a fraud finally wake people up to the more general problem of rampant Lex Fridmanism?

XTOD: If long rates continue to rise we are not out of the woods for additional banking problems.  In addition, office and other challenged CRE will be harder to refinance, raising non-performing loans at the same time of large held to maturity securities losses.

XTOD: I am expecting 'unseasonality' over the balance of the year

*  In the coming months we will be forced to face and to navigate the hangover caused by years of quantitative easing and ZIRP

* Mounting consumer, corporate and government debt, the lack of discipline in fiscal

XTOD: In our latest infographic, economists from our #CenterForInflationResearch answer the question: How does raising interest rates help to lower #inflation?

Explore now: http://clefed.org/3Burp5e

XTOD: Hang onto the first people you hire. They're crucial to the company.

XTOD: I think the thing that offends me the most about this book is how Lewis gives a microphone to SBF to speak grandly about all kinds of broad philosophical, social, political, and economic conditions, as though an oracle, when, in fact, he sounds like a spoiled child.

https://x.com/NickTimiraos/status/1709582646433526112?s=20

https://x.com/jasonfurman/status/1709302339746865207?s=20
https://x.com/ConvexityMaven/status/1709651600757739811?s=20
https://x.com/BobEUnlimited/status/1709533286152737248?s=20
https://x.com/lukeburgis/status/1709394520691868147?s=20

https://x.com/EricSRosengren/status/1709275617710002314?s=20
https://x.com/DougKass/status/1709878744993636835?s=20
https://x.com/ClevFedResearch/status/1709653372830130598?s=20

https://x.com/WSJ/status/1709610597661241752?s=20
https://x.com/PeterContiBrown/status/1709321544617337034?s=20