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The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields

Takeaway: A look at the pancaking of yield curves around the globe.

The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - bond yields


Below are sovereign bond yields for select countries with negative interest rate policies. The graphs show the yield curves for those sovereign bonds today (green line) versus where they were last year (yellow line).  


German 10yr:


6/9/15: 0.949% 

Today: 0.037%


Click images to enlarge.

The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - german yield curve


Japanese 10yr:


6/9/15: 0.448%

Today: -0.131%


The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - japan yield curve


Swiss 10yr:


6/9/15: 0.211%

Today: -0.48%


The NIRP Effect: How Central Planners Are Pancaking Global Bond Yields - switzerland yield curve


How This Whole thing Shakes Out is anyone's guess.

Got Demand?

Takeaway: One thing that is not up for debate is the rate of change in global demand, the growth of which continues to decelerate on a trending basis.

In this morning’s Early Look – which is an absolute must-read for anyone interested in successfully navigating the reflation vs. deflation debate – Keith posited whether or not it’s appropriate to chase reflation-oriented factor exposures higher from here:


“I’ve been much more vocal on the Long Utilities (XLU) vs. Short Financials (XLF) view than I have been on being long Reflation and that’s basically because it was an easier call to make that growth would slow than it was that being right on #GrowthSlowing would get people to chase Reflation Charts that have been blowing investors up for 3 years. I don’t think of this as a mistake yet (this “bull” only started in MAR/APR). I’m actually thinking of it as an opportunity. While I haven’t been short Energy this year (we were last year with our #StrongDollar Deflation call), I haven’t been long it either.


Do I buy something that I’ve initially missed (that’s already had a huge move) that doesn’t have global demand behind it? Maybe. I have no problem buying or selling anything, don’t forget. If Energy stocks (XLE, XOP, OIH, etc.) are about to put on a 6-12 month move (higher) from here, it’s my job not to miss that inasmuch as it’s my job not to get sucked into the allure of its momentum.”


For now we remain squarely in the “no position” camp. While that may not be especially useful for anyone who’s under pressure to put capital to work today, we do think as the authors of the global deflation trade going back to the late-summer/early-fall of 2014, we’ve afforded ourselves some time to wait and watch after having [fortuitously] closed out our bearish biases on energy and industrials in early January on our Q1 Macro Themes Call.


One thing that is not up for debate is the rate of change in global demand – the growth of which continues to decelerate on a trending basis.


Looking at Markit PMI data (something that is admittedly easy to track because the consistent nature of index construction makes it cross-country comparable on an apples-to-apples basis), we see that global growth slowed sequentially in MAY. Moreover, said weakness was perpetuated by sequential slowdowns in both advanced and emerging economies.


Got Demand? - GLOBAL C PMI






Looking at the data more granularly, we see that only 35% of country and regional PMI figures across manufacturing, services and composite readings are both expanding (i.e. > 50) and accelerating sequentially as of last month. The rest are either expanding but decelerating or in outright contraction (i.e. < 50). Furthermore, the latest monthly and 3MMA values (51.1 and 51.4, respectively) for the global composite PMI are only in the 3rd and 5th percentiles, respectively, on a trailing 3Y basis.


Got Demand? - 4

Got Demand? - 5


Got Demand? - 6


We’ve been hearing that “global PMIs are bottoming” every month since OCT, so we’re not exactly sensitive to that view. That said, however, if you feel you’re aware of a near-term catalyst to get the aforementioned indicators to inflect sustainably (other than eventual mean reversion as all diffusion indices eventually do), we’re all ears. Feel free to email us and we can discuss further.


Best of luck out there navigating the ongoing slowdown in global growth.




Darius Dale


CALL REPLAY | Brexit: Should I Stay or Should I Go?

Yesterday Hedgeye Potomac hosted a timely call with Alexander Nicoll to discuss Brexit – will the UK vote to stay or leave the EU on June 23rd? 


Nicoll, a consulting member of the London-based think tank International Institute for Strategic Studies, walked through a seven point framework to contextualize the events leading up to the UK vote and what the outcome of the vote spells for the UK and EU.


The call included a very lively question and answer session that was moderated by our own James Taylor (on the financial and political implications of the vote) and our own Lieutenant General Emo Gardner (on security and defense considerations).


Replay of the one hour call (click here).

Presentation Materials (click here).


While opinion polls currently reveal a near dead heat on the Brexit vote (see the Poll of Polls below), ultimately, Nicoll shares our opinion that UK voters will tip towards the Remain camp.  To review our thoughts on Brexit, including the market and FX impacts, see our note titled Got Brexit? Nope!


Below we summarize some of the salient points discussed in Nicoll’s prepared remarks and the Q&A.

CALL REPLAY | Brexit: Should I Stay or Should I Go? - Poll of Polls


Summary Points:

  • No country has ever left the EU. Should the UK leave, it would deal a huge blow to the ‘European Project’, namely a common market for free trade and a customs union, and the shared set of values, laws, and regulations established to increase security and advance democracy.
  • Why the Referendum?  Grounded in domestic politics, it resulted from a long standing split in the Conservative Party.  Since 1990 there has been a strong anti-Europe/Eurosceptic wing of the Conservative party. Given the rise of the right-wing populist party, the UK Independence Party (UKIP), PM David Cameron has made a series of concessions to prevent conservative members of Parliament from defecting to UKIP.  Cameron’s Remain or Leave vote is therefore not coming from a popular groundswell of opinion but rather Conservative politics.   
  • Eurosceptics.  Main Positions: 1) The UK has lost its sovereignty - Brussels overrules Westminster, and 2) Immigration - overrun by excess immigration, especially from Eastern Europe.  Eurosceptics are running a very emotional campaign, tapping into sentiment that a European identity doesn’t exit. Their slogan: “Take back control”. 
  • Remain Camp. Strongly focused on the British economy argument, it states that the UK is economically stronger in the EU vs outside. This position is supported by hundreds of independent economists, the Bank of England, IMF, and OECD.  There's strong support from key partners of Germany and France to Remain.
  • Who Will Win?  Cliffhanger. Poll of Polls show a near dead heat between Remain and Leave parties. Bookmakers’ odds suggest stronger probability of Remain. 
  • Defense Stronger in EU?  On defense, the EU has not made much progress on military matters, so UK’s presence in or out of the EU does not make much of a difference.
  • Security.  Given terrorism through the world, global threats need international cooperation.  In crisis, a UK in the EU is better able to bring resources together that can be impactful in negotiating with other nations. However, should the UK Leave, its main alliance option may be a closer cooperation with NATO.
  • Impact on Relations and Business with the U.S.?  The EU is seen as a much more important entity under President Obama vs prior administrations.  Washington’s view is that the UK is isolating itself if it votes Brexit. Manufacturing, including Aerospace & Automobiles in particular, and Financial Services (London enjoys Financial Capital status) would be the industries most impacted from a Brexit.
  • Contagion?  There’s no exact parallel to the UK’s current Brexit vote.  The National Front in France is a big threat, yet France and Germany remain very strong Pro-European countries.  Euroscepticism, however, is percolating in Finland and Denmark, and also in Spain and Italy – should the UK exit, it throws the entire framework of ‘what is the EU’ into question, and the extent, if any, of a splintering across the continent is difficult to determine.   
  • Roadmap for Trade Relationships if the UK Exits?  The Leave camp says it can strike agreements with whomever it wants – and in general presents the UK as having much more freedom in how it deals with countries throughout the world.  In contrast, the Remain camp presents the benefits of the huge free trade agreement afforded to all EU member states.  The Remain camp underlines the ~ 45% of British exports that go to EU and the ~ 53% of imports to the UK that come from the EU, suggesting that by all estimates, this relationship has increased trade and investment. It presses that the alternative, namely no knowing what future trade agreements could be completed and under what terms, as a great risk to fade. 

The Great Debate: Reflation Versus Deflation

The Great Debate: Reflation Versus Deflation - reflation cartoon 10.13.2015


Good thing the jobs number was a bomb.


Heading into today SPY was up for 5 of the last 6 days on a massive reflation move that squashed the dollar as investors bet Dovish Fed = Down Dollar = Stocks Up. The U.S. Dollar index is down -1.7% since then.


The Great Debate: Reflation Versus Deflation - dxy index 6 9


But with the dollar up today, the reflation trade has been unravelling a bit. 



Where do we go from here?


Here's analysis via Hedgeye CEO Keith McCullough in a note sent to subscribers earlier this morning.


"With USD signaling immediate-term TRADE oversold this wk, did we see the final push/capitulation/chase in all things Down Dollar Dovish Fed, or is reflating the former bubble just getting started? Sounds like a Q3 Hedgeye Macro Theme in the works… Oil +41% in the last 3 months but Copper -6.4% - demand?"

A Closer Look At Consensus Positioning (& Why We Completely Disagree)

Takeaway: Consensus is overwhelmingly long the S&P 500 and short 10yr Treasuries. Don't do that!

A Closer Look At Consensus Positioning (& Why We Completely Disagree) - consensus positioning


Consensus is overwhelmingly long the S&P 500 and short 10yr Treasuries. 


Before you dogpile in on that. Consider where we're at...


In her most recent speech, Fed head Janet Yellen expressed concern about the jobs market, while reiterating that the Fed is data dependent. In the past six months, the Fed pivoted from Hawkish (in December) to Dovish (March/April) to Hawkish (May). Market consensus now perceives Yellen and the Fed as flipping back to Dovish in June.


Meanwhile, Yellen’s favorite economic indicator (the “Labor Market Conditions Index”) just hit a 7-year low and credit growth had its biggest deceleration since 2010.


In other words, U.S. #GrowthSlowing.


So, what’s an investor to do?


The Fed is perpetuating volatility in macro markets, so stick with what’s worked all year, Long Bonds (TLT). Stating the obvious, that is the exact opposite of how Macro consensus is positioned. TLT has been our most vocal macro call for a while now and has served us well. It is up around 11% YTD versus 3% for the S&P 500.

[UNLOCKED] Keith's Daily Trading Ranges

We've made some new enhancements to Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to view a brief video of McCullough explaining how to use it most effectively.


Subscribers now receive risk ranges for 20 tickers each day -  the last five of which are determined by what's flashing on Keith's screen and by what names subscribers are asking about. Click here to subscribe.


  • Bullish Trend
  • Bearish Trend
  • Neutral

10-Year U.S. Treasury Yield
1.78 1.64 1.71
S&P 500
2,082 2,121 2,119
Russell 2000
1,139 1,195 1,188
NASDAQ Composite
4,872 4,995 4,974
Nikkei 225 Index
16,303 16,972 16,830
German DAX Composite
10,015 10,368 10,217
Volatility Index
13.02 16.75 14.08
U.S. Dollar Index
93.15 94.87 93.60
1.10 1.14 1.13
Japanese Yen
105.53 108.77 107.00
Light Crude Oil Spot Price
47.78 51.37 51.53
Natural Gas Spot Price
2.12 2.60 2.46
Gold Spot Price
1,240 1,270 1,265
Copper Spot Price
2.02 2.11 2.06
Apple Inc.
96.73 100.99 98.94
Amazon.com Inc.
697 734 726
McDonald's Inc.
120 124 122
Netflix Inc.
96 102 97
Alphabet Inc.
716 751 742
General Mills Inc.
63.00 64.75 64.42

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.