Broad-Spectrum #22: No debt crisis
A buzzer beater from Sleepy Joe and their bipartisan friends! So when moon now???
Welcome to Broad Spectrum Finance.
We are finally past the debt crisis narrative as of to-day!
McCarthy and Biden finally agreed to a debt deal, averting crisis. (Bloomberg) Exactly 12 seconds before US defaulted. Jokes.
No debt ceiling problem for another 2 years!
Are things finally looking bright for the risk assets and shitcoins now?
Are things finally okay?????
NO!
Well, at least Morgan Stanley does not think so.
We are also closing in on the next FOMC meeting this month.
If you look at the bond traders’ positioning, the market is sure about a skip this time, then keep on raising. Skip and raise, duck and dive, bop n hop.
Well, pause or cuts, we have literally seen the most hardcore rate hike cycle.
However, the labor market is still solid as a rock! (almost). Well, it is at least volatile. In June, Non-farm payrolls printed 339,000 in rises, beating 180,000 as expectations. Simply put? Robust. Well, there’s also this side though, look how robust that is:
…and inflation is not cooling down fast enough, so we are only seeing a cute little comedown in the shorter-term rates.
Are the leading indicators outright wrong this time or are the lags merely longer? We find arguments at least of the latter. Pandemic-era savings have acted as a buffer for consumers amidst the headwinds of higher inflation and tighter monetary policy, while the dominant fixed-rate mortgages shield the majority of mortgage holders from higher rates. The labour market remains tight and wage gains have caught up with inflation.
While the message of the leading indicators should not be disregarded and does point to downside risks for the economy, our conclusion remains one of longer lags than usual and a resilient economy, which will mean it will take time for inflation pressures to calm down for good. We thus still think the Fed will hike once more, even if they may pause in June, and we do not see any rate cuts until well into next year.
SOURCE: Nordea Macro & Markets Strategy
Don’t get us wrong. The blow-out number in jobs added to the economy is actually a good thing for the people. People are getting jobs, even though the headline unemployment
But that’s not what the FED wants to see now, is it? That’s not the ideal contribution to the whole “Rate cuts, now!” narrative.
Also do keep in mind the fact, that credit is still tightening.
And demand for corporate credit is also declining (and was also declining, by a large margin.)
Anyways, If you are still looking for a possible moon or a boom in assets against this back drop, here’s one for you:
And no, this is not PEPEUSDT before it got listed on Binance. This is the assets of Direxion Daily 20+ Year Treasury Bull 3X ETF, TMF 0.00%↑. The aim of the ETF itself is basically leveraging the price action of the performance of long-dated treasuries through derivative instruments. The performance of the index itself is the inverse of the ICE U.S. Treasury 20+ Year Bond Index.
For the sake of brevity, long term rates are going down! That’s what market thinks, and it is probably true, IF we are already past the peak in rates. Which is also probably true though.
But frankly, the global comeback and recovery does not look as bright and shiny in the other parts of the world as it does in the U.S. The macro data coming out of China is not totally promising, we can say the same thing for its market index, stocks and the national currency.
But against all this, the U.S. indexes are still firmly keeping their levels. In fact, it might not be the NDX rallying. SPX might be joining the party soon.
So it might not be actually the AI stocks and big tech companies (or last year’s laggards making a comeback narrative, call it what you want to call it, I am a F... hold up, Xzibit, now’s that the time.)
Caveat: In kind of does still look like only a few stocks.
However, both S&P 500 and the NASDAQ are making new 1-year highs.
And volatility levels for stocks and bonds have also been falling, which is supportive to this move.
However, though, private clients guided by big banks have been mostly sellers.
Hedge funds are also very short.
So where does this leaves us? Are we in a bull market? Probably not. Are we in a bear market? Probably not. What we are still seeing is an unhealthy sector rotation.
Things will get more clear as we move closer to the FOMC this month. But things never get super clear in the markets.
See you in a few days time.