ISM Saves The Day?
ISM Saves The Day?
Making sense of some conflicting information.
First things first let’s check in on the yield curve. The first few days of the week have seen a significant bearish steepening. In other words, short rates haven’t gone down any while long rates have gone up.
We were seeing some continuation of that move today with stocks down again and the long end of the curve down as well until ISM released and both reversed.
As I write this stocks are bleeding their gains. It will be interesting to see where we close.
What Other People Are Saying
wrote a post this morning saying to fade the bounce on ISM. His post is here.
The gist of it is that ISM means the economy is strong, there is some concerning inflation data just below the surface, and this print give the Fed the ability to continue to “wait it out” a few months on cuts.
I agree with him. I think the Fed knows that they are in danger of cutting too early, and they will try to drag the cuts out as long as possible. If commodities keep going up and we get some amount of inflation stickiness or resurgence from that then they will try to hold the line as long as they can.
The question will be do treasury yields skyrocket and lead to some dysfunction and force their hand? Will we get a recession or other crisis and force their hand? Historically, something like that has always happened: the Fed has been forced to cut by the markets by some exogenous event.
Powell Speaking
Powell reiterating that they are going to be data dependent, wait and see, etc. Nothing new here although the market seemed to take it as affirmation to stay risk on.
I’m worrying a bit at this point that the yield pop is going to just be a flash-in-the-pan and go back to being a back burner concern. By default the market wants to just be long and not worry.
I see bonds continuing to bleed while stocks up. I think that’s the default meta for now, while watching for the risk of a big bond sell of sparking some equity unease.
Gold
Last quick note. Gold is breaking out to all time highs in a move that is probably overdue. It’s finally responding to all these big narratives and thems around why central bank currencies suck.
If you needed proof that the breakout is real and will continue, look no further than this headline:
https://www.ft.com/content/96b621f7-90d6-457e-898a-1c04e2902ceb