The SP500 has now lost $3.5 trillion in value since the Fed removed a recession from their forecast
The Fed marked the exact high in July 2023 with their "no recession" call. Since then, the S&P 500 is down 9% and just hit its lowest level since May 31st. We are also 1% away from entering correction territory just as earnings season begins. Source: The Kobeissi Letter
Fed Chair Jay Powell on why longer-term yields are moving higher: “It’s not apparently about expectations of higher inflation
And it’s also not mainly about shorter term policy moves.” He probably has a point as #realyields are surging toward 2.5%, the highest since 2008. So what else can explain the surge in bond yields? Hints: 1) 1. A resilient economy — Q3 REAL GDP growth is expected to be around 3% annualized, well above trend growth of 1.5% to 2%, driven in large part by a resilient labor market and a strong consumer 2) Supply/demand imbalances — Given the growing U.S. fiscal deficit, the Treasury Department has been increasing its auction sizes for U.S. Treasury bills and notes. This year, the total amount of Treasuries issued in auctions is expected to climb to over $3 trillion, higher than at any year over the past decade (excluding 2020). This figure is expected to increase next year. Meanwhile, some of the natural demand for these bonds has moderated: The Fed is undertaking QT (reducing its holding of Treasuries by about $650 billion over the last year) and some foreign buyers, such as China, have slowly been reducing their holdings of U.S. Treasuries as well. Source: Lisa Ambramowitz, Bloomberg, Edward Jones
The correlation was weaker in the 1980s/1990s, but starting after 2000, gold has historically done quite well whenever the Fed pauses or cuts
Source: Lyn Alden
BREAKING >>> Powell says inflation is still too high and lower economic growth is likely needed to bring it down
US 10-year is just 3bp shy of 5%... Federal Reserve Chairman Jerome Powell acknowledged recent signs of cooling inflation, but said Thursday that the slowing in price increases was not enough yet to determine a trend and that the central bank would be “resolute” in its commitment to its 2% mandate. “Inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said in prepared remarks for his speech at the Economic Club of New York. “We cannot yet know how long these lower readings will persist, or where inflation will settle over coming quarters.” Source: CNBC, Ole S.Hansen, Bloomberg, Saxo
Ahead of Powell speech tomorrow...
Confidence in the Chair of the Federal Reserve has reached its lowest point in 20 years... By Visual capitalist
Stunning to see that markets are beginning to price-in chances of rate HIKES all the way until December 2024
There's now a ~49% chance of a rate hike by January 2024. There is even an 11% chance of a rate hike in July 2024... Meanwhile, the 10-year note yield is nearing 4.90% right now. Will 8% mortgages soon going to look like a good deal? Source: The Kobeissi Letter
The Fed's balance sheet hit its lowest level since June 2021 this week, down over $1 trillion from the peak in April 2022
Annual changes in the Fed's balance sheet since 2002... Source: Charlie Bilello
Heavy Supply remains a risk for US Treasuries
How long will the Fed be able to continue with QT? Source: Michel A.Arouet
