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What to Tell Clients Who Are Worried About U.S. Treasuries

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What to Tell Clients Who Worry About U.S. Treasuries

What’s in Today’s Report:

  • What to Tell Clients Who Are Worry About U.S. Treasuries.
  • Start a free trial of The Sevens Report.

Futures are little changed following a mostly quiet night of news as investors look ahead to today’s CPI report.

Politically, a “Continuing Resolution” to fund the government will be voted on in the House today and if passed, will avert a government shutdown.

Economically, the UK unemployment rate and German ZEW Business Expectations Index both beat expectations (although they aren’t moving markets).

Today focus will be on the CPI report and expectations are as follows:  CPI (E: 0.1% m/m, 3.3% y/y), Core CPI (E: 0.3% m/m, 4.1% y/y).  Generally speaking, numbers that show core CPI is continuing to decline will be welcomed by markets. While readings that imply the decline in inflation is “stuck” or inflation is bouncing back, will likely result in declines in both stocks and bonds.

We also have several Fed speakers today including Barr, Mester, and Goolsbee. We’ll be watching for their reaction to the CPI report. If it makes them more hawkish that’s a negative and more dovish, a positive).

What to Tell Clients

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Does Dow Theory Outperform? (Yes)

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What’s in Today’s Report:

  • A Good Question on Dow Theory Returns Over the Years

Stock futures are little changed this morning while bond yields are moving higher with the 2-Yr Note yield notably trading above 4% as banking fears continue to ease although markets still remain on edge.

There were no market moving economic reports overnight and news wires were generally quiet.

Looking into today’s session, there are several economic reports due to be released in the U.S. including: International Trade in Goods (E: -$90.0B), Case-Shiller Home Price Index (E: 3.7%), FHFA House Price Index (E: -0.2%), and Consumer Confidence (E: 101.0).

Shortly after the open, the Fed’s Barr will testify before the Senate beginning at 10:00 a.m. ET regarding the recent banking turmoil and state of the financial industry. Any negative comments or developments during the testimony that weighs on bank shares will very likely drag down the broader market.

Looking to the afternoon, there is a 5-Yr Treasury Note auction at 1:00 p.m. ET that could impact the broader bond market and move stocks.

Is the Fed Really Going to Turn That Dovish?

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What’s in Today’s Report:

  • Why Did the Nasdaq Rally Yesterday?
  • Is the Fed Really Going to Turn That Dovish?
  • Charts: 2-Yr Note Yield Plunges the Most in Decades, VIX Has Further to Run

Stock futures are cautiously higher and yields are bouncing globally following better than expected economic data overnight and more stable price action in U.S. bank shares while traders continue to unwind hawkish Fed policy bets ahead of today’s CPI report.

Economically, the U.K’s ILO Unemployment Rate came in at 3.7% vs. (E) 3.8% which is pressuring Gilts (down 11 bp) and lifting yields across Europe and the U.S. while the NFIB Small Business Optimism Index rose to 90.9 vs. (E) 89.9.

Looking into today’s session, focus will be on the February Consumer Price Index release before the bell with the headline expected to rise 0.4% m/m (6.0% y/y) while the all-important Core CPI figure is also expected to rise 0.4% m/m (5.5% y/y).

There are no Fed speakers today so if the inflation data comes in hot, expect a rebound in yields that would likely pressure equities as traders reassess the less-hawkish policy expectations that have been priced into rates markets since the SVB debacle began.

Additionally, bank shares (KBE) will remain in focus and if contagion fears persist and financial stocks remain under pressure, it will be hard for the broader equity market to meaningfully stabilize, much less recover some of the recent losses.

Tom Essaye Interviewed by Yahoo Finance on August 12, 2021

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‘There is political pressure building on the Fed’: Sevens Report Research Founder

Well, I think that the 5-year tips over treasuries breakeven is heavily influenced by…Tom Essaye from Sevens Report Research. Click here to see the full interview.