RJO FuturesCast

Daily Futures Market News, Commentary, & Insight

by John Caruso. Senior Market Strategist

Yesterday’s action was pure Scenario 4 – Stocks down hard, Bonds up, and Commodities down.  We’ve had a mix of Stagflation and Risk-Off through Q2 thus far – and on the eve of the CPI/PPI data due on Wed and Thurs, we may begin to see signs of the inflation component of the economy begin to cool.

CPI Inflation: I’m not going to pretend that I know what tomorrows CPI number is going to be, honestly we could see go either way due to a few factors.  We actually think there’s a chance of an acceleration in CPI because of the heavy weighting of the energy component of the number – we just saw Natural Gas prices climb 28% for the month of April on the Nord Stream pipeline dispute between Russia and Europe.  However, we did see the Manheim Index (measure Used Car Prices – another heavyweight inside of CPI) slow at its fastest pace on record in a 3 month window – that’s big for those making the inflation abating call.  All of this followed by yesterday’s -14% decline in Natural Gas prices, and a 6% drop Oil – yesterday’s price declines may not show up until the June reading.

Following last Friday’s Jobs data release, Rick Rieder Head of Fixed Income Trading at Blackrock put a note out on Twitter, I’ll summarize below:

The economy is moderating in numerous places; earnings reports have been expressing uncertainty and slowing labor demand.  The impact of higher interest rates is also dulling companies outlook on financing and growth from here.  Based on evidence labor demand is peaking just as the Fed has begun to accelerate its tightening.  Financial conditions are tightening in an amazingly rapid fashion, and while economic conditions more broadly take longer to react, we think that we will see some more evidence of this slowing over the coming months.  That raises the question of whether the Fed may slow its tightening process at some point over coming months as a result of these expected trends.

I’m very choosy of who I pay mind to in this industry – many talking heads out there with too many “feelings”, but Rick Rieder is one I certainly watch and listen too closely.  He’s a fixed income titan who manages 1.8T of Fixed Income Investments. 

Bonds: the 10yr yield took a peak at the 2018 highs and didn’t like what it saw.  Yields backed off approximately 12bps yesterday from a high of around 3.20%.  Consider that we’re AT or NEAR peak Fed HAWKISHNESS – I don’t think its all that difficult to do, as we made that case yesterday (and Rick makes it above).  I think we’re finally beginning to see signs of stabilization in Fixed Income as 3.00% yields begin to challenge dividend stock hideouts in Equities. 

Bart Smith