I am a nervous Bull on Treasuries. My longer term thesis calls for lower rates due to deflationary fears. The increasing value of the dollar I don’t think jives with the Hyper-inflationary conditions that people are expecting from the Bond markets message BUT it could signal Cost-push inflation. It is definitely something I am keeping my eye on. Even though I expected YoY PPI and CPI to increase due to the extremely low readings the year prior, this report was a little above my expectations.
Looking at TNX, 3.69 is the level that I am looking at. It’s the area of a trendline that’s been in place since June and after that, a pretty big deal at 3.70, which is a trendline that’s been in place since, June of 2007. Even more alarming is the large inverted head and shoulders that once broken at a trend line of 3.80, would be a very bearish signal for Treasuries.
I would be a nervous holder of Treasury ETFs at this point and would have my finger nearby the trigger to start selling.
My thesis stands at Treasures going up in value as the starker reality is known that we will not be coming out of this in a V-shaped like fashion but in fact might double dip into recession (a scenario similar to Japan’s…look at where their bond yields stand…and they have way more debt than we do). However, we might double dip back into recession along with with cost-induced inflation that would place the economy in a stagflation scenario (something that I considered a while back..See archive 5/20/2009). However this Stagflation scenario would not be a persistent event. Higher interest rates would add another enormous headwind to the economy and would in essence serve as a vice for any further growth. As soon as the global economy started growing, the fact that there is so much debt out there (Treasuries, etc) coupled with fears of inflation would immediately push up rates and cap the recovery, a short of stealth Stagflation in that the danger is always there upon any sign of growth.
Yet other possibilities are that the market is giving us is a signal of no-confidence in the administrations ability to use the cash in an effective manner and to Bernanke’s machinations OR it’s the markets confidence in the world economy but not the USs. An interesting time indeed.
Upcoming Key Macro Events
- Target for UK Triggering Article 50 March 29, 2017
- Senate Intelligence Committee Public Hearing March 30, 2017
- (TENT) Tarullo, Fed Governor set to resign April 5, 2017
- NATO foreign ministers meet April 5, 2017
- (TENT) Trump meets with Jinping at Mar-a-Lago April 6, 2017 Mar-a-Lago
- Confirmation vote for Neil Gorsuch April 7, 2017
- Eurogroup Summit (Greek bailout resolved?) April 7, 2017
- Target date to have AHCA passed the Senate April 7, 2017 at 5:00 pm – 6:00 pm
- Tillerson meets G7 foreign ministers in Italy April 10, 2017 Italy
- Target date for approval of ACA from both Houses April 14, 2017
- US: Budget resolution technically due. April 15, 2017
- (TENT): G7 Foreign Ministers meet in Tuscany April 15, 2017 Tuscany
- (TENT): Duterte visits Moscow (April or May) April 15, 2017
- Turkish Constitutional Referendum (Erdogan enhanced powers) April 16, 2017
- French Presidential election (1st round) April 23, 2017
- Spending bill deadline April 28, 2017 Republicans and Democrats agreed in late 2015 on a budget deal to increase some spending for two years to fund the government and avoid a shutdown and debt default. However Congress still needs to come up with a spending bill within those parameters by April 28
- Treasury Semiannual report on on International Economic and Exchange Rate Policies April 28, 2017
- EU summit to discuss Brexit April 29, 2017
- FOMC meets on interest rate policy May 2, 2017 – May 3, 2017
- French presidential election (run off) May 6, 2017
- (TENT): G7 finance ministers meet in Puglia May 15, 2017 Puglia
- OPEC meeting in Vienna May 25, 2017 Vienna
- 43rd G7 Summit in Sicily, Italy May 25, 2017
- (TENT) Article 50 negotiations to begin June 1, 2017 Mrs. May’s letter will pave the way for Britain to leave by March 2019
- D-day anniversary June 4, 2017 at 3:30 pm – 4:30 pm 1944
- FOMC meets on interest rate policy* June 13, 2017 – June 14, 2017 Summary of Economic Projections and a press conference by the Chair.
- (TENT): Deadline for Greek debt payment (IMF review) July 1, 2017
- TENT Thaad deployed in South Korea?? July 1, 2017 South Korea??
- G20 Summit in Germany July 7, 2017 – July 8, 2017 Do Trump and Putin meet?
- FOMC meets on interest rate policy July 25, 2017 – July 26, 2017
- (TENT) Xiangshan military forum August 31, 2017
- (TENT) Catalan Referendum for independence August 31, 2017
- FOMC meets on interest rate policy* September 19, 2017 – September 20, 2017 Summary of Economic Projections and a press conference by the Chair.
- German Bundestag elections September 24, 2017
- FOMC meets on interest rate policy October 31, 2017 – November 1, 2017
- China's Singles Day November 11, 2017
- FOMC meets on interest rate policy* December 12, 2017 – December 13, 2017 Summary of Economic Projections and a press conference by the Chair.
- (TENT) Italian National Elections January 1, 2018
- Chair Yellen's term ends (if not reappointed) February 3, 2018
- Fed: Yellen's term expires February 3, 2018
- Fed: Lockhart (Centrist to slighly dovish) retires? February 28, 2018
- Fed: Fischer's term expires June 12, 2018
- Austrian general election due by Sept 2018 September 1, 2018