Yesterday's 1Q2024 GDP report was "stagflationary" with lower than expected real growth (1.6% vs. 2.5% estimated) and higher than expected inflation (3.1% v. 3.0% estimated on headline, with Core PCE at 3.7% v. 3.4% estimated). Of course everyone is pointing to the miss being driven by trade and inventories as making it somewhat less meaningful, but who knows.
Stocks fell over 1%, then rebounded some. Out on the curve hit highs not seen in 5 months with the 10Y over 4.70%. Initial jobless claims broke the streak of printing 212K by printing 207K.
After hours Google and Microsoft earnings helped improve sentiment.
On the day ahead we have the BoJ who is facing a super-weak Yen and the U.S. PCE report along with the UofM sentiment survey (asking consumers how they feel about gas prices...not really, but highly correlated).
XTOD: Microsoft’s yearly data center spend for the next few years is more than that of the Apollo program (yes, adjusted for inflation)
XTOD: Treasury Secretary Janet Yellen said the US economy 'continues to perform very, very well' and that she still sees inflation falling back to more normal levels
XTOD: GDP growth came in a bit below expectations at a 1.6% annual rate in the first quarter.
But much of the slowdown was in non-inertial items like inventories (-0.35pp) and net exports (-0.86pp). The better signal of final sales to private domestic purchasers was 3.1%.
XTOD: If no revisions, and there will be some surely, today’s quarterly Core PCE implies a m/m up by almost 50 bp (48 bp to be precise) to be reported tomorrow - this is really bad (consensus and whisper are around 30 bp) and most likely warrant a language shift by JPOW on Wednesday
Market shifted full price cut from Nov to Dec and residual probability of a 2nd hike is now down to just a third
XTOD: Sitting at Eden Rock conceiving of the most outrageous outcomes
It's hard to conceive of a US slowdown presently
We're no way near through the end of fiscal spend
I keep saying 2 for 2...
We won't see 2% inflation for 2 years
The fiscal transformed the US into the economic locomotive of the world
Great, but...
Arguably, the dollar standard was conceived under the conceit that the US economy would be a dullard
Today, instead, it's the locomotive of the world...
And it's reset the risk free rate to intolerable levels for the RoW
Somethings gonna break
But before then
Just like the late 1920s,
There's a huge carry trade pouring money into US risk assets
Borrow in yen for zero, catch 5.5% on cash
Hell, 20% on risk asset price gains pa
Pay your yen back in stronger dollars
This money train is unstoppable
Then imagine the ECB cuts rates
They really need to...
And that carry trade is gonna be amplified to the moon.
The RoW needs lower rates
Will the Fed subjugate its domestic growth mandate
Will it be convinced of the need to coordinate an interest rate cut with the Europeans ?
A coup de whisky...
It's done so many times before
But it'll need convincing
Somethings likely to break
Can I remind you that the yen has devalued 40%
40% !!
And US banks have huge unrealized losses on their hold-to-maturity treasury holdings and no one cares, no one asks for quantification, everything's gonna be alright, yeah ?
And we're 10 bps away from ten year treasury yields exploding higher
And 5 bps from the red cabbage accelerating its decline
Recap
US economic engine of the world
Global monetary system never conceived of this
Higher rates killing the collateral value of Treasuries
Not killing the velocity of US GDP growth
Something gonna break
Fed will cut in unison with the Europeans
Risk asset prices could explode higher
if you don't understand, go back to the beginning
https://x.com/patrick_oshag/status/1783496707650486689
https://x.com/Reuters/status/1783527710167367805
https://x.com/jasonfurman/status/1783489264073973972
https://x.com/INArteCarloDoss/status/1783489511189565500
https://x.com/hendry_hugh/status/1783251601907396730
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