Strong Retail Sales Force Yields Higher and Equities to Dump

Hello Traders and Investors and thank you for joining me for another edition of the Magnelibra Markets Podcast, I’m your host Mike Agne and today’s episode #20 is entitled “Strong Retail Sales Force Yields Higher and Equities to Dump”

But first a quick regulatory disclaimer:

DISCLAIMER: The following podcast is for educational purposes only. This is not a solicitation to buy or sell commodity futures or options. The risk of trading securities, futures and options can be substantial and may not be appropriate for all listeners.

What a day, there seems to be a few accounts taking profit and perhaps putting on positions that counter the bullish narrative in equities and bonds. We know that ECB Lagarde was a bit hawkish in her remarks, however we know that monetary policy amongst the various global central banks is a coordinated effort. If the Federal Reserve Board (FRB) is going to be the first central bank to cut rates in a new regime, well then the others will follow in unison and will do so in a planned coordinated effort. By the way we like referring to the Federal Reserve as the FRB, because its how they were once referred to back in the day and it seems more consistent with the other central bank acronyms…we just thought we would clarify that.

Alright so what did we notice today, well Retail Sales was 2 tenths stronger at 0.6 expected 0.4, so this got the ball rolling on the sell side. Bond yields jumped and equity prices dumped. The bonds and equities spent the day recovering and trying to claw back but the damage was done and they both finished in negative territory and will go over the settles in more detail later on.

For now let’s focus upon the US yield curve and the rate situation. When we look at the 2Y We can see that we have fallen from the high to the lows since October by nearly 108 basis points and that this recent move has the looks of some decent profit taking and not a start of a new trend higher, not yet at least:

When we look at the days action across the US maturity spectrum the curve flattened handily as the 2s were +12.5bp while the bond was basically unchanged +0.7bp:

Overall we do find it interesting when we look at the various yield curves and compare their levels to early May post the SVB banking debacle the level of the various bond curves seem to be faltering from those same levels. However the big question we have is, are we not closer to a rate cut now then we were in May of 2023? We think so and its why we believe that the recent curve move and yields spike is merely profit taking and not a start of a new broader trend:

We also know the underlying fundamentals are not good and today we had the pleasure of listening in on an exclusive roundtable discussion with Peter Berezin, Chief Global Investment Strategist with BCA Research and their slide deck had this chart entitled “Tighter Lending Standards Will Curb Credit Growth.”

What it showed is that bank lending standards lead C&I Loan growth and the bank lending standard is well below current C&I now. Also the charts show upticks in delinquency from most of the credit sectors spanning Credit Card, Auto Loan, Mortgage and Home Equity:

Source: BCA Research

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