“Price change does not occur evenly over time, but tends to concentrate in short turbulent periods.”
- Benoit Mandelbrot
Did you hear that inflation accelerated? How about bond yields? Did you hear they went up as inflation was #accelerating (for all of last year)? How about the Fed? Did you hear that even they see inflation now?
Fully loaded with the meltdown in High Yield (HYG) and Junk (JNK), yesterday’s news is crystal clear. What I’m most focused on is what happens to the GROWTH and INFLATION data during #Quad4 in Q2. You know it’s not even Q2 yet, right?
I get it. The data could change. Why? With the war, it just did! That’s Q1’s news though. Realize I’ll change my positioning as my signals, growth, and inflation nowcasts change. I am quite comfortable being uncomfortable with this 24 hour move in bond yields.
Back to the Global Macro Grind…
In the last 24 hours the US 2-year Treasury Yield went up 10%. In the last week it went up +22%. Oh yes, the ROC (rate of change) matters, especially when concentrated in short-periods of market time.
The aforementioned quote is from the preface or Fractals & Scaling in Finance. On the cover of the book is a “spongiform object that can be admired in Paris. This object is a natural fractal; as such it exhibits holes of many different sizes just as financial data exhibit cycles of many different durations.” -Mandelbrot
No, not everyone looks at market signals and/or economic data fractally, across different durations. I do. And I certainly won’t be changing that singular measuring and mapping #process today because people on Twitter are going bananas about bond yields.
So “why” the 24-hour ramp:
A) Powell was all hawked up talking to the Old Wall Journal guys
B) The bond market immediately added another 50 basis points of hikes to the prior
C) That puts hikes at 7.57x for 2022 vs. 6.73x only 1-week ago today
What did that do?
A) Drove the UST 2yr Yield up to 2.19% this morning (vs. 1.99% yesterday and 1.80% last week)
B) Drove the 10yr and 30yr yields up less to 2.35% and 2.57%, respectively… and
C) It crashed the Yield Curve to new #Quad4 in Q2 Cycle Lows of +16 basis points wide on 10s/2s
Looking out a year at 10s/2s, the market is pricing in that the Fed is going to:
A) Tighten into a REAL GROWTH #Slowdown…
B) Invert the Yield Curve fully… but, but…
C) None of that demand #slowing is going to disinflate the big things that have inflated?
Yes, in part C) there is a question that has a real-time answer in my #process. Inasmuch as the same nowcasting #process called for GROWTH and INFLATION to shock the shorts (equity bears) at this time last year, it’s calling for a rollover of inflation expectations in Q2 to Q4 of this year alongside a more shocking deceleration in both real GROWTH and Corporate Profits.
The real GROWTH and PROFIT #slowdown is really easy to “call.” The bean counting on INFLATION, not so much. But here’s what’s brand spanking new in our INFLATION Nowcast model this morning:
A) Big LOWER-HIGH in my CRB Commodities Index Risk Range at 302 (closing high for The Cycle = 309, March 8th)
B) Big LOWER-HIGH in my Oil (WTI) Risk Range at $114.90/barrel (the HIGH for that was March 9th at $128.94/barrel)
C) Big LOWER-HIGH in my Copper Risk Range at $4.77/lb
And subcomponents of INFLATION that I remember calling out throughout the summertime breakout of 2020 (we went Bullish on US INFLATION #Accelerating and Commodities in June of 2020, don’t forget), like Lumber, are already #crashing.
Lumber and The Curve crashing at the same time? Oh yes, you know when I go all CAPS on you and rub in some #hashtags that I’m probably looking at something in the spongiform that Tourists don’t see…
Remember the time during the #Quad2 in Q2 GROWTH and INFLATION peak (+12.2% year-over-year GDP growth) when Macro Tourists were showing you the Lumber “chart” at $1700? It crashed -20% in the last week alone and has disinflated -43% since Q2 or 2021.
What to do with these new Disinflationary real-time updates?
A) I’ll be selling some Energy Longs on green
B) I’ll be buying some short and long-term Treasuries (after selling-SOME on green last week)
C) I’ll be buying-more Gold and Silver if I get some on sale
Why? What do I know, but maybe it’s why both Gold and Utilities (XLU) remain Bullish TRADE and TREND Signals (despite this short-term pop in bond yields). For now, neither see much upside in the UST 10yr beyond the 2.38-2.48% range from here.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 30yr Yield 2.29-2.60% (bullish)
UST 10yr Yield 1.85-2.38% (bullish)
UST 2yr Yield 1.62-2.21% (bullish)
High Yield (HYG) 79.70-82.80 (bearish)
SPX 4104-4513 (bearish)
NASDAQ 12,409-14,129 (bearish)
RUT 1 (bearish)
Tech (XLK) 139-157 (bearish)
Energy (XLE) 70.05-78.01 (bullish)
Gold Miners (GDX) 36.06-39.20 (bullish)
Utilities (XLU) 69.21-71.51 (bullish)
DAX 13,209-14,754 (bearish)
VIX 21.97-35.75 (bullish)
USD 97.69-99.51 (bullish)
EUR/USD 1.083-1.114 (bearish)
USD/YEN 116.67-120.78 (bullish)
Oil (WTI) 90.48-114.90 (bullish)
Gold 1 (bullish)
Copper 4.44-4.77 (bullish)
Bitcoin 37,188-42,909 (bearish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
