BREAKING: The US job market remains strong
In December, the US economy added 216,000 jobs, above expectations of 170,000. This means that the US economy has now added jobs for 36 consecutive months. The US Unemployment Rate held steady at 3.7% in December (consensus estimate was for an increase to 3.8%). Wages actually increased to 4.1% year over year from 4% in November. The market reaction is as you'd expect - yields higher, with fewer rate cuts being priced in for 2024. In light of these numbers, there is a problem with the number of FED rate cuts being priced in. Source: Bloomberg
This year is just the fifth time that the S&P 500 has started the year with back-to-back declines of 0.5% or more
Source: Bespoke
Oh boy... Container shipping rates skyrocket 173%
Carriers diverted +$200 billion in trade from the red sea due to Houthi militant threats. shipping a 40-foot container from Asia to northern Europe now costs over $4,000, up +173%. Supply-chain issues are back.. Have markets been celebrating the end of inflation too soon? Source: Genevieve Roch-Decter, CFA, Bloomberg
Could a hot US job print invalidate the downward trend in bond yields?
The US 10 year is flirting with the massive 4% levels again. A close above it and things could become even more "dynamic" to the upside. Note 21 day right here, while 50 day remains way higher. Source: Refinitiv, TME
One of the major risk for equity markets in the short-run is Euphoria that prevailed at the start of the year. In other words, positioning is uber-bullish and can only go down from here
As Goldman trader Cullen Morgan writes, after 9 consecutive weeks higher in the S&P (quite a rarity), sentiment and positioning in US equities is very stretched. On the positioning front, US futures length (see chart below) now stands near record highs. In past instances when non-dealer positioning has been greater than $130bn, near term returns have been strong, while returns further out (3-months to 1-year) tend to skew more negative… With the latest data at +$158bn, Goldman traders are very wary of this now being a larger headwind. Similarly, CTA positioning in US Equities is approaching 2023 highs. Bottom-line: any geopolitical or macro news (e.g too hot US jobs print) might lead to higher bond yields might might put some downside pressure on equity markets.
10-Year Treasury Yield Options Bet
Ahead of US jobs data, an Options Trader bet $625,000 that the 10-Year Treasury Yield would surge to at least 4.15% by Friday's close. If the yield were to jump to 4.20%, the bet would pay the trader $10 million in profit. Source: Barchart, Bloomberg
Correlation between Equity and Bond returns
Source: BlackRock, Ayesha Tariq, CFA
Chinese stocks are trading near all-time lows relative to GDP, while US stocks are trading near all-time highs relative to GDP
Perhaps for good reason... but that's a massive spread. Source: Swordfishvegetable
