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Long Term Trends On Gold, Crypto, Stock Market & Much More

A lot has happened in financial markets in the last quarter. Without any further ado, let’s look at the changes and major developments in the charts.

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A lot has happened in financial markets in the last quarter. Without any further ado, let’s look at the changes and major developments in the charts.
Let’s start by looking at the 10-Year Treasury Yield, which is back to its long-term average for the first time since 2007. Source
Examining possible reasons for rising yields the WSJ notes
  • “The Fed isn’t a buyer, banks historically are a fraction of buying and now the banking system is shrinking.
  • Put those together, Treasurys have to clear at a different price.
  • That means higher yields—it’s pretty simple.”
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1. Debt Crisis

Naturally, yields are connected to a number of things. Let’s start by examining the US Government debt crisis.
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Debt levels are rising because the Government is spending more than it receives in revenue.
Visualizing the 2022 Federal Budget puts the yearly deficit in perspective. However, interestingly defense expenditure remains at historically low levels.
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In its June 2023 Budget Outlook the CBO projects:
  • “that federal debt held by the public relative to the size of the economy will nearly double within three decades” and that “spending will continuously outpace revenue”.
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Rising yields are of course devastating for serving the interest payments on the national debt. Brian Riedl recently wrote an important piece explaining the dynamics that are driving a potential debt crisis. He notes that:
  • Between 1990 and 2021, the average interest rate that the federal government paid on its debt gradually declined from 8.4% to 1.7%. However, Washington never locked in those low interest rates.
  • The average maturity of the federal debt remains at just 76 months, so nearly all of it must be replaced with new bonds within a decade.
  • Each additional percentage point in interest would cost Washington $2.8 trillion over the decade, and $30 trillion over three decades.
  • Washington’s interest rate may settle around 4% to 5%, which would gradually push the debt well past 200% of GDP.

As Charlie Bilello shows, the interest expense on US public debt is rising rapidly and will soon cross $1 trillion per year.

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In the words of Paul Tudor Jones:

  • “You get in this vicious circle, where higher interest rates
    • cause higher funding cost,
    • cause higher debt issuance, which
    • cause further bond liquidation, which
    • cause higher rates,
  • which put us in an untenable fiscal position.”

Legendary investor Ray Dalio said:

  • “We’re going to have a debt crisis in this country. How fast it transpires, I think, is going to be a function of that supply-demand issue, so I’m watching that very closely.
  • He writes: “The best way for policy makers to reduce debt burdens without causing a big economic crisis is to engineer what I call a “beautiful deleveraging,” which is when policy makers both
    1. restructure the debts so debt service payments are spread out over more time or disposed of (which is deflationary and depressing) and
    2. have central banks print money and buy debt (which is inflationary and stimulating).
  • Doing these two things in balanced amounts spreads out and reduces debt burdens and produces nominal economic growth (inflation plus real growth) that is greater than nominal interest rates, so debt burdens fall relative to incomes.”

2. Yield Curve

Let’s examine yields in more detail. Since the last newsletter in June, yields rose across all maturities, with the long-end rising faster than the short-end, causing the Yield Curve to steepen.
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The Yield Curve is often considered to be a predictor of an economic recession.
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3. Bonds

Rising yields have of course been devastating for bond prices, especially high duration ones, which are more sensitive to interest rate hikes. As an extreme example, the 100-Year Austrian Government Bond experienced a 75% crash since December 2020.
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According to Charlie Bilello, at 38 months, the Bloomberg US Aggregate Bond Index has experienced its longest bear market in history.
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Looking at the 1-year rolling correlation between Stocks and Bonds, during the latest recession, bonds have not served as the diversifying asset that they’re known for in the 60/40 portfolio. Instead they stayed relatively correlated with stocks and thus they fell in tandem.
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4. US Stock Market

So how have stocks been impacted by rising yields? The answer is “it depends”. For example,  Microsoft  locked in low interest rates on their debt in 2020-21 and are now earning much higher yields on their cash.
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However, as Charlie Bilello explains,
  • many companies are not in the same position as the behemoth that is Microsoft. In terms of borrowing cost, rising interest rates have hit smaller companies much harder than larger ones.
  • Interest expenses for the small-cap S&P 600 Index hit a record high in the second quarter.
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Accordingly, we see that over the last few months, large-cap stocks have been outperforming small-cap stocks.
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With this rise in large-cap stocks, the top 10 holdings in the S&P 500 now make up 30.5% of the index, the highest concentration we’ve seen with data going back to 1980.
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In fact, Apple, Microsoft, Alphabet, Amazon, NVIDIA, Tesla, and Meta now represent over 28% of the S&P 500 Index.
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The situation among small-cap stocks is dire, around 1/3 of Russell 2000 companies aren’t profitable – near the highest level in data going back to 1985.
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5. Stock Market Sectors

  • Let’s take a closer look at stock market sectors. Year-to-date, 3 sectors drove the market higher: Communication Services (incl. Google and Meta), Information Technology (incl. Apple, Microsoft, Nvidia) and Consumer Discretionary (incl. Amazon).
  • Consumer Staples (incl. Walmart and Procter & Gamble) and Utilities (incl. NextEra Energy, Southern Company and Duke Energy) underperformed the most.
  • According to Richard Bowman from simplywall.st, dividend stocks (most common in the Utilities sector) are sensitive to rates for the following reasons:
    • Firstly, these companies use a lot of debt so higher rates means their cost of capital goes up. 
    • Secondly, why should you buy a “risky” stock yielding 4% when a “risk-free” government bond earns you 4.5%?
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6. Stocks Globally

Internationally, US stocks have been outperforming the rest of the world since 2008.
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As of September 29, US stocks now make up 62.25% of the MSCI All Country World Index, which includes developed as well as emerging markets.
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Similarly, Emerging Markets have been underperforming developed markets since 2010.
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Examining emerging markets in a bit more detail, India has been outperforming China by a huge margin  over the last 3 years. This has been driven by Indian companies in the Industrials, Utilities and Real Estate sectors.
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7. Gold

Amidst global geopolitical tensions, Gold, a traditional safe harbor, has been shrugging off rising real yields.
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The Gold/Silver Ratio has been rising along with the strength of the US dollar.
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The Oil/Gold Ratio has been falling along with US Stock Market Volatility.
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8. Commodities

Commodities, as measured by the Producer Price Index, peaked in May 2022 and have only started to rise again in recent months.
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9. Home Prices

Similarly, Home Prices are on the rise again.
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Mortgage rates have been rising faster than other yields with long maturities. The average 30-Year Fixed Rate Mortgage Rate is back at 7.57%, which is the highest reading in 23 years!
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Credit spreads between Mortgages and US Treasury Bonds are as high as during the 2008 housing crisis.
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The average house in the US now cost 7.4 times the US median annual household income, which is higher than during the Housing Bubble.
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Contrary to what home prices might imply, the US housing market is frozen. Pending home sales in the US have moved down to their lowest level since April 2020, Apartment construction is down and vacancy rates are up.
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Meanwhile, affordability is at record lows.
  • The median American household would need to spend 43.8% of their income to afford the median priced home. That’s the highest percentage in history, worse than the peak of the last housing bubble.
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10. Crypto

Let’s finish by looking at Crypto. Year-to-date, Bitcoin has outperformed Ethereum, causing Bitcoin/Ether ratio to fall.
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Relative to the entire crypto market, Bitcoin Dominance has been holding its position after it broke out above 47% in June 2023.
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This Is Nuts – An Entire Market Chasing One Stock

This Is Nuts – An Entire Market Chasing One Stock

Authored by Lance Roberts via RealInvestmentAdvice.com,

“When you sit down with your…

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This Is Nuts – An Entire Market Chasing One Stock

Authored by Lance Roberts via RealInvestmentAdvice.com,

“When you sit down with your portfolio management team, and the first comment made is ‘this is nuts,’ it’s probably time to think about your overall portfolio risk. On Friday, that was how the investment committee both started and ended – ‘this is nuts.’”

 – January 11th, 2020.

revisited that original post a couple of weeks ago as the market approached its 5000 psychological milestone. Since then, the entire market has surged higher following last week’s earnings report from Nvidia (NVDA). The reason I say “this is nuts” is the assumption that all companies were going to grow earnings and revenue at Nvidia’s rate.

Even one of the “always bullish” media outlets took notice, which is notable.

“In a normal functioning market, Nvidia doing amazingly is bad news for competitors such as AMD and Intel. Nvidia is selling more of its chips, meaning fewer sales opportunities for rivals. Shouldn’t their stocks drop? Just because Meta owns and uses some new Nvidia chips, how is that going to positively impact its earnings and cash flow over the next four quarters? Will it at all?

‌The point is that investors are acting irrationally as Nvidia serves up eye-popping financial figures and the hype machine descends on social media. It makes sense until it doesn’t, and that is classic bubble action.” – Yahoo Finance

As Brian Sozzi notes in his article, we may be at the “this is nuts” stage of market exuberance. Such usually coincides with Wall Street analysts stretching to “justify” why paying premiums for companies is “worth it.”

We Can’t All Be Winners

Of course, that is the quintessential underpinning for a market that has reached the “this is nuts” stage. There is little doubt about Nvidia’s earnings and revenue growth rates. However, to maintain that growth pace indefinitely, particularly at 32x price-to-sales, means others like AMD and Intel must lose market share.

However, as shown, numerous companies in the S&P 1500 alone are trading well above 10x price-to-sales. (If you don’t understand why 10x price-to-sales is essential, read this.) Many companies having nothing to do with Nvidia or artificial intelligence, like Wingstop, trade at almost 22x price-to-sales.

Again, if you don’t understand why “this is nuts,” read the linked article above.

However, in the short term, this doesn’t mean the market can’t keep increasing those premiums even further. As Brian concluded in his article:

“Nothing says ‘investing bubble’ like unbridled confidence. It’s that feeling that whatever stock you buy — at whatever price and at whatever time — will only go up forever. This makes you feel like an investing genius and inclined to take on more risk.”

Looking at some current internals tells us that Brian may be correct.

This Is Nuts” Type Of Exuberance

In momentum-driven markets, exuberance and greed can take speculative actions to increasingly further extremes. As markets continue to ratchet new all-time highs, the media drives additional hype by producing commentary like the following.

“Going back to 1954, markets are always higher one year later – the only exception was 2007.”

That is a correct statement. When markets hit all-time highs, they are usually higher 12 months later due to the underlying momentum of the market. But therein lies the rub: what happened next? The table below from Warren Pies tells the tale.

As shown, markets were higher 12 months after new highs were made. However, a lot of money was lost during the next bear market or correction. Except for only four periods, those bear markets occurred within the next 24 to 48 months. Most gains from the previous highs were lost in the subsequent downturn.

Unsurprisingly, investing in the market is not a “risk-free” adventure. While there are many opportunities to make money, there is also a history of wealth devastation. Therefore, understanding the environment you are investing in can help avoid potential capital destruction.

From a technical perspective, markets are exceedingly overbought as investors have rushed back into equities following the correction in 2022. The composite index below comprises nine indicators measured using weekly data. That index is now at levels that have denoted short-term market peaks.

Unsurprisingly, speculative money is chasing the Mega-cap growth and technology stocks. The volume of call options on those stocks is at levels that have previously preceded more significant corrections.

Another way to view the current momentum-driven advance in the market is by measuring the divergence between short and long-term moving averages. Given that moving averages smooth price changes over given periods, the divergences should not deviate significantly from each other over more extended periods. However, as shown below, that changed dramatically following the stimulus-fueled surge in the markets post-pandemic. Currently, the deviation between the weekly moving averages is at levels only previously seen when the Government sent checks to households, overnight lending rates were zero, and the Fed bought $120 billion monthly in bonds. Yet, none of that is happening currently.

Unsurprisingly, with the surge in market prices, investor confidence has surged along with their allocation to equities. The most recent Schwab Survey of bullish sentiment suggests the same.

More than half of traders have a bullish outlook for the first quarter – the highest level of bullishness since 2021

Yes, quite simply, “This is nuts.”

Market Measures Advise Caution

In the short term, over the next 12 months, the market will indeed likely finish the year higher than where it started. That is what the majority of analysis tells us. However, that doesn’t mean that stocks can’t, and won’t, suffer a rather significant correction along the way. The chart below shows retail and professional traders’ 13-week average of net bullish sentiment. You will notice that high sentiment readings often precede market corrections while eventually rising to higher levels.

For example, the last time bullish sentiment was this extreme was in late 2021. Even though the market eventually rallied to all-time highs, it was 2-years before investors got back to even.

Furthermore, the compression of volatility remains a critical near-term concern. While low levels of volatility have become increasingly common since the financial crisis due to the suppression of interest rates and a flood of liquidity, the lack of volatility provides the “fuel” for a market correction.

Combining excessive bullish sentiment and low volatility into a single indicator shows that previous levels were warnings to more bullish investors. Interestingly, Fed rate cuts cause excess sentiment to unwind. This is because rate cuts have historically coincided with financial events and recessions.

While none of this should be surprising, given the current market momentum and bullish psychology, the over-confidence of investors in their decision-making has always had less than desirable outcomes.

No. The markets likely will not crash tomorrow or in the next few months. However, sentiment has reached the “this is nuts” stage. For us, as portfolio managers, such has always been an excellent time to start laying the groundwork to protect our gains.

Lean on your investing experience and all its wrinkles.” – Brian Sozzi

Tyler Durden Tue, 02/27/2024 - 08:11

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“There’s An Odd Chill In The Air” – Dallas Fed Respondents Warn Of “Pending Doom”

"There’s An Odd Chill In The Air" – Dallas Fed Respondents Warn Of "Pending Doom"

For the 22nd straight month, The Dallas Fed’s Manufacturing…

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"There's An Odd Chill In The Air" - Dallas Fed Respondents Warn Of "Pending Doom"

For the 22nd straight month, The Dallas Fed's Manufacturing Survey headline indicator was negative in February.

Despite it's bounce from January lows, the headline remained at -11.3 (while the six-months-ahead forecast also surged to +11.8 - highest since Feb 2022)...

Source: Bloomberg

Under the hood, everything seemed positive too...

Labor market measures suggested growth in employment, Wage and input costs continued to increase this month, while selling prices remained flat. The new orders index - a key measure of demand - shot up 18 points in January to 5.2. The raw materials prices index retreated five points to 15.4, falling further below average and indicative of more modest cost growth than usual.

Source: Bloomberg

So, labor good, prices down, new orders awesome - sounds great right?

Let's ask the business owners in the Dallas area how they feel...

"There's an odd chill in the air that we can't determine if it's election related, general economic malaise or fear of pending doom. It's very strange. Things are status quo with a bit of negative undertone, which is somewhat disturbing for business owners."

"Turmoil at the federal level is impacting funding."

"Sales were below projections for January and February; March does not look encouraging."

"The shortage of labor that was critical during the pandemic and after has turned to being merely very tight—meaning very difficult to find qualified personnel. Job jumping has ground to a halt."

"I have no idea what is going to happen."

"The economy is hurting the trucking business. The uncertainty is bothering people."

"Please lower interest rates."

So, 'the data' is positive, but 'the anecdotes' are a shitshow.

We'll let Jeff Bezos explain which to pay more attention to...

"The thing I have noticed is when the anecdotes and the data disagree, the anecdotes are usually right.

There's something wrong with the way you are measuring it."

One can't help but see the glaring gap between private reality and managed data's sense of it - makes you wonder if there's an agenda at work.

Even Goldman recently admitted that there is vast divide between how happy we should all be based on government-supplied data versus how we actually feel...

Bidenomics!?

Tyler Durden Mon, 02/26/2024 - 12:25

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Key Events This Week: All Eyes On Core PCE Amid Deluge Of Fed Speakers

Key Events This Week: All Eyes On Core PCE Amid Deluge Of Fed Speakers

After a relatively quiet week on the data front, things start to pick…

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Key Events This Week: All Eyes On Core PCE Amid Deluge Of Fed Speakers

After a relatively quiet week on the data front, things start to pick up again even as earnings season comes to a close.

In terms of key events, DB's Jim Reid writes that it’s hard to look too far beyond the latest core PCE print on Thursday after the recent strong CPI report and the strong relevant sub-components in the PPI. DB economists believe the MoM core print will be at 0.36% vs. 0.17% last time. This would make it the highest since last January. The fact that last January was 0.51% means that rolling out base effects should help the YoY rate edge down a tenth to 2.8%. However it's the monthly print that will be all important. Staying with inflation, preliminary CPI prints are also due from Germany and France (Thursday) and for the Eurozone (Friday).

Back to the US, we have new (today) and pending (Thursday) home sales with the focus on whether higher mortgage rates and bad weather in January has had a big impact. Then we have durable goods and consumer confidence (tomorrow), the second reading of Q4 GDP on Wednesday, the personal income and spending data (Thursday), and the ISM manufacturing data as well as unit auto sales as we close out the week by welcoming in a new month on Friday.

Friday is also the day that we could see a partial government shutdown if Congress fails to pass the 2024 budget that has already been agreed to. DB's economists think that it's possible we get a short-term continuing resolution for an extra week which would push it past the "Super Tuesday" primaries on the 5th and coincide with the deadline for the second tranche annual funding bills.

There is also a fair degree of Fed speak which you can see in the calendar at the end as usual alongside all the other data. Chinese PMIs on Friday might be the most interesting non-US data, and should include the lunar new year holidays in the sample period, so one to watch.

Courtesy of DB, here is a day-by-day calendar of events

Monday February 26

  • Data: US January new home sales, February Dallas Fed manufacturing activity, Japan January national CPI
  • Central banks: ECB's Stournaras and Vujcic speak, BoE's Breeden and Pill speak
  • Earnings: Workday, Zoom
  • Auctions: US 2-y Notes ($63bn), 5-y Notes ($64bn)

Tuesday February 27

  • Data: US January durable goods orders, February Conference Board consumer confidence, Richmond Fed manufacturing index, business conditions, Dallas fed services activity, Q4 house price purchase index, December FHFA house price index, Germany March GfK consumer confidence, France February consumer confidence, Eurozone January M3
  • Central banks: Fed's Schmid and Barr speak, BoE's Ramsden speaks
  • Earnings: Lowe's, American Tower, AutoZone, Ferrovial, Puma, Macy's
  • Auctions: US 7-y Notes ($42bn)

Wednesday February 28

  • Data: US January retail inventories, advance goods trade balance, Japan January industrial production, retail sales, Italy February manufacturing confidence, economic sentiment, consumer confidence, Eurozone February services, industrial, economic confidence, Canada Q4 current account balance
  • Central banks: Fed's Bostic, Collins and Williams speak, ECB's Muller speaks, BoE's Mann speaks
  • Earnings: Salesforce, Snowflake, Universal Music Group, Holcim, Baidu, Okta, SQM, Endeavor Group, Paramount Global

Thursday February 29

  • Data: US January PCE, personal income and spending, pending home sales, February MNI Chicago PMI, Kansas City Fed manufacturing activity, initial jobless claims, UK January net consumer credit, mortgage approvals, M4, February Lloyds business barometer, Japan January job-to-applicant ratio, jobless rate, housing starts, Italy December industrial sales, Germany February unemployment claims rate, CPI, France February CPI, January PPI, consumer spending, Canada Q4 GDP
  • Central banks: Fed's Bostic, Goolsbee and Mester speak, BoJ's Takata speaks
  • Earnings: AB InBev, Dell, Autodesk, Haleon, Leonardo, Covestro

Friday March 1

  • Data: US February ISM manufacturing index, Kansas City Fed services activity, total vehicle sales, January construction spending, China February official PMIs, Caixin manufacturing PMI, Japan February consumer confidence, Italy January unemployment rate, February CPI, manufacturing PMI, budget balance, new car registrations, 2023 GDP, Eurozone February CPI, January unemployment rate, Canada February manufacturing PMI
  • Central banks: Fed's Williams, Waller, Bostic, Daly and Kugler speak, ECB's Holzmann speaks, BoE's Pill speaks

* * *

The key economic data releases this week are the durable goods report on Tuesday, the core PCE report on Thursday, and the ISM manufacturing report on Friday. There are many speaking engagements from Fed officials this week, including governors Barr, Waller, and Kugler, as well as presidents Schmid, Bostic, Collins, Williams, Goolsbee, Mester, and Daly.

Monday, February 26

  • 10:00 AM New home sales, January (GS +3.5%, consensus +3.0%, last +8.0%)
  • 10:30 AM Dallas Fed manufacturing activity, February (consensus -14.0, last -27.4)
  • 07:40 PM Kansas City Fed President Schmid (FOMC non-voter) speaks: Kansas City Fed President Jeff Schmid will give a speech on the economic and monetary policy outlook at an event in Oklahoma City, OK. Text, Q&A, and livestream are expected.

Tuesday, February 27

  • 08:30 AM Durable goods orders, January preliminary (GS -6.0%, consensus -5.0%, last flat); Durable goods orders ex-transportation, January preliminary (GS flat, consensus +0.2%, last +0.5%); Core capital goods orders, January preliminary (GS -0.1%, consensus +0.1%, last +0.2%) ;Core capital goods shipments, January preliminary (GS +0.1%, consensus +0.2%, last flat): We estimate that durable goods orders fell 6.0% in the preliminary January report (mom sa), reflecting a lull in commercial aircraft orders that more than offsets a rebound in the defense category. We forecast soft details as well, including a 0.1% decline in core capital goods orders reflecting an end-of-year lull in global manufacturing activity and scope for order cancellations at the start of the year.
  • 09:00 AM FHFA house price index, December (consensus +0.3%, last +0.3%)
  • 09:00 AM S&P Case-Shiller 20-city home price index, December (GS +0.1%, consensus +0.2%, last +0.15%)
  • 09:05 AM Federal Reserve Vice Chair for Supervision Barr speaks: Federal Reserve Vice Chair for Supervision Michael Barr speaks at the Conference on Counterparty Credit Risk Management. Speech text and livestream are expected. On February 14, Barr said, “As Chair Powell indicated in his most recent press conference, my FOMC colleagues and I are confident we are on a path to 2% inflation, but we need to see continued good data before we can begin the process of reducing the federal funds rate. I fully support what he called a careful approach to considering policy normalization given current conditions…Given the limited historical experience with the growth and inflation dynamics we currently face, and no modern experience of emerging from a global pandemic, we have yet another reason to proceed carefully, as we have been doing.”
  • 10:00 AM Conference Board consumer confidence, February (GS 114.6, consensus 115.0, last 114.8)
  • 10:00 AM Richmond Fed manufacturing index, February (consensus -8, last -15)

Wednesday, February 28

  • 08:30 AM GDP, Q4 second release (GS +3.4%, consensus +3.3%, last +3.3%); Personal consumption, Q4 second release (GS +2.8%, consensus +2.7%, last +2.8%): We estimate a 0.1pp upward revision to Q4 GDP growth to +3.4% (qoq ar), reflecting upward revisions to government spending and healthcare consumption, partially offset by downward revisions to inventory investment, consumer goods spending, and recreation categories.
  • 08:30 AM Advance goods trade balance, January (GS -$86.0bn, consensus -$88.3bn, last -$87.9bn)
  • 08:30 AM Wholesale inventories, January preliminary (consensus +0.2%, last +0.4%)
  • 12:00 PM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will answer questions on the economic outlook and monetary policy at a fireside chat in Roswell, GA. Q&A is expected. On February 16, when discussing when to begin cutting the fed funds rate, Bostic said, “A year ago, six months ago, I was in the fourth quarter. So, we’ve seen tremendous progress, and I’m hopeful that that continues. If that continues, I’ll be willing to pull it forward even further.” He added that he could “for sure” see three cuts instead of the two he anticipated in the latest Summary of Economic Projections. On February 15, Bostic said, “The evidence from data, our surveys, and our outreach says that victory is not clearly in hand and leaves me not yet comfortable that inflation is inexorably declining to our 2% objective. That may be true for some time, even if the January CPI report turns out to be an aberration…I require more confidence before declaring victory in this fight for price stability...My expectation is that the rate of inflation will continue to decline, but more slowly than the pace implied by where the markets signal monetary policy should be…Right now, a strong labor market and macroeconomy offer the chance to execute these policy decisions without oppressive urgency.”
  • 12:15 PM Boston Fed President Collins (FOMC non-voter) speaks: Boston Fed President Susan Collins will give remarks, participate in a fireside chat, and take audience questions in an event hosted by the Center for Business, Government & Society. Speech text, Q&A, and livestream are expected. On February 7, Collins said, “Seeing sustained, broadening signs of progress should provide the necessary confidence I would need to begin a methodical adjustment to our policy stance…it will likely become appropriate to begin easing policy restraint later this year…a methodical, forward-looking strategy that eases policy gradually will provide the flexibility to manage risks, while promoting stable prices and maximum employment.”
  • 12:45 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will deliver keynote remarks at the Long Island Association Regional Economic Briefing. Speech text, Q&A with media, and livestream are expected. On February 23, Williams said, “At some point, I think it will be appropriate to pull back on restrictive monetary policy, likely later this year. But it’s really about reading that data and looking for consistent signs that inflation is not only coming down but is moving towards that 2% longer-run goal.” He added, “Rate hikes are not my base case. But clearly, if fundamentally the economic outlook changes in a material, significant way — either with inflation not showing signs of moving toward the 2% longer-run goal on a sustained basis or other indicators that monetary policy is not having the needed or desired effects in order to achieve that goal — then you have to rethink that.”

Thursday, February 29

  • 08:30 AM Personal income, January (GS +0.5%, consensus +0.4%, last +0.3%); Personal spending, January (GS -0.1%, consensus +0.2%, last +0.7%); PCE price index (mom), January (GS +0.36%, consensus +0.3%, last +0.2%); PCE price index (yoy), January (GS +2.39%, consensus +2.4%, last +2.6%); Core PCE price index (mom), January (GS +0.43%, consensus +0.4%, last +0.2%); Core PCE price index (yoy), January (GS +2.85%, consensus +2.8%, last +2.9%): We estimate that personal spending declined 0.1% and that personal income increased 0.5% in January. We estimate that the core PCE price index rose 0.43% in January, corresponding to a year-over-year rate of +2.85%. Additionally, we expect that the headline PCE price index rose 0.36%, or +2.39% from a year earlier. Our forecast is consistent with a 0.22% increase in our trimmed core PCE measure for January (vs. 0.20% in December and 0.12% in November).
  • 08:30 AM Initial jobless claims, week ended February 24 (GS 200k, consensus 210k, last 201k); Continuing jobless claims, week ended February 17 (GS 1,860k, consensus 1,874k, last 1,862k)
  • 10:00 AM Pending home sales, January (GS +1.0%, consensus +1.1%, last +8.3%)
  • 10:50 AM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will participate in a fireside chat at the 2024 Banking Outlook Conference on the economic outlook, monetary policy, and state of the banking industry. Q&A and Livestream are expected.
  • 11:00 AM Kansas City Fed manufacturing index, February (last -9)
  • 11:00 AM Chicago Fed President Goolsbee (FOMC non-voter) speaks: Chicago Fed President Austan Goolsbee will join a virtual event for remarks on “Monetary Policy at an Unusual Time.” Q&A and livestream are expected. On February 14, Goolsbee said, “Let’s not get amped up on one month of CPI that was higher than it was expected to be…If you see inflation go up a little bit that doesn't mean that we're not on the target to get to 2%. We can still be on the path even if we have some increases and some ups and downs…so let's not get too flipped out." On February 5, Goolsbee said, “We’ve had seven months of really quite good inflation reports, right around or even below the Fed’s target. So if we just keep getting more data like what we have gotten, I believe that we should well be on the path to normalization.”
  • 01:15 PM Cleveland Fed President Mester (FOMC voter) speaks: Cleveland Fed President Loretta Mester will speak at the Columbia University School of International and Public Affairs and Bank Policy Institute's 2024 Bank Regulation Research Conference. Text and Q&A are expected. On February 6, Mester said, “It would be a mistake to move rates down too soon or too quickly without sufficient evidence that inflation was on a sustainable and timely path back to 2%. If the economy evolves as expected, I think we will gain that confidence later this year, and then we can begin moving rates down.”
  • 08:10 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will participate in a moderated discussion at an event hosted by the Citizens Budget Commission. Q&A and livestream are expected.

Friday, March 1

  • 09:45 AM S&P Global US manufacturing PMI, February final (consensus 51.5, last 51.5)
  • 10:00 AM Construction spending, January (GS +0.6%, consensus +0.2%, last +0.9%)
  • 10:00 AM University of Michigan consumer sentiment, February final (GS 79.2, consensus 79.6, last 79.6); University of Michigan 5-10-year inflation expectations, February final (GS 2.9%, consensus 2.9%, last 2.9%): We estimate the University of Michigan consumer sentiment index declined to 79.2 in the final February reading and estimate the report's measure of long-term inflation expectations will be unrevised at 2.9%.
  • 10:00 AM ISM manufacturing index, February (GS 49.1, consensus 49.5, last 49.1): We estimate the ISM manufacturing index was unchanged at 49.1 in February, as negative residual seasonality offsets a rebound in global manufacturing activity and in other business surveys. Our GS manufacturing tracker rose 4.2pt to 50.4.
  • 10:15 AM Fed Governor Waller and Dallas Fed President Logan (FOMC non-voter) speak: Fed Governor Christopher Waller and Dallas Fed President Lorie Logan will each respond to a paper titled "Quantitative Tightening Around the Globe: What Have We Learned?" at the 2024 US Monetary Policy Forum in New York. Speech text and Q&A are expected. On February 22, Waller said, “The strength of the economy and the recent data we have received on inflation mean it is appropriate to be patient, careful, methodical, deliberative – pick your favorite synonym. Whatever word you pick, they all translate to one idea: What’s the rush?” He added, “I am going to need to see a couple more months of inflation data to be sure that January was a fluke and that we are still on track to price stability…My conjecture is that, in the absence of a major economic shock, delaying rate cuts by a few months should not have a substantial impact on the real economy in the near term. And I think I have shown that acting too soon could squander our progress in inflation and risk considerable harm to the economy.” On January 6, Logan said, “If we don’t maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up and reverse the progress we’ve made…In light of the easing in financial conditions in recent months, we shouldn’t take the possibility of another rate increase off the table just yet.”
  • 12:15 PM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will speak in a moderated conversation on topics including the economic outlook and real estate trends at a conference in Orlando. Q&A is expected.
  • 01:30 PM San Francisco Fed President Daly (FOMC voter) speaks: San Francisco Fed President Mary Daly will participate in a panel discussion on "AI & the Labor Market" at the 2024 US Monetary Policy Forum, moderated by Kansas City Fed President Jeffrey Schmid. Text and Q&A are expected. On February 16, Daly said, “To finish the job will take fortitude. We will need to resist the temptation to act quickly when patience is needed and be prepared to respond agilely as the economy evolves…Price stability is within sight. But there is more work to do.” Daly added that three 25bps cuts to the fed funds rate was a “reasonable baseline.”
  • 03:30 PM Fed Governor Kugler speaks: Fed Governor Adriana Kugler will speak about pursuing the dual mandate at the 2024 Stanford Institute for Economic Policy Research Economic Summit. Speech text, Q&A, and livestream are expected. On February 7, Kugler said, “At some point, the continued cooling of inflation and labor markets may make it appropriate to reduce the target range for the federal funds rate. On the other hand, if progress on disinflation stalls, it may be appropriate to hold the target range steady at its current level for longer to ensure continued progress on our dual mandate.”
  • 05:00 PM Lightweight motor vehicle sales, February (GS 15.3mn, consensus 15.4mn, last 15.0mn)

Source: DB, BofA, Goldman

Tyler Durden Mon, 02/26/2024 - 10:05

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