“I used to think that if there was reincarnation, I wanted to come back as the president or the Pope or a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.” — James Carville
Chart of the Day
Good morning!
The age-old adage that stocks follow bonds has always guided the smart investors. The turmoil this month seems to indicate that bond vigilantes might be guiding even one of the most powerful men on Earth to back down.
After Liberation Day turned sour, stocks sold off, so did the U.S. dollar and Treasury bond yields increased. That’s a bad combination because when stocks fall, typically investors are supposed to be able to rely on the so-called risk-free asset of Treasurys and also the haven dollar for holding onto their values. And, yes, even though the 60-40 investment strategy is not deemed as effective anymore, it is still shocking when, in the span of a few days, long-term bond yields shoot to 4.356% on April 9 from 4.127% on April 2.
Of course, this sent many investors into panic mode, all the while revering the bond vigilantes for standing up to Trump.
When Trump decided to pause tariffs on April 9, the move was heralded by Wall Street as the Trump put, meaning that he likely didn’t want things to get too “yippy.”
Bond vigilantes, however, have been slow to buy it. The 10-year Treasury yield peaked out at 4.582% a couple days after the pause was announced, and they still finished Tuesday higher than where they were before the Liberation Day announcement. To be sure, there could be a multitude of reasons behind that move, ranging from basis trades to off-the-run trades to swap spread trades to even unsubstantiated claims of foreign central bank selling.
At least this week, the drama has calmed down some. And it was encouraging to see data from JPMorgan’s rate analysis desk, as highlighted by the FT, suggest that things aren’t as bad as they were back in 2020, when the Federal Reserve had to step in and rescue markets (business per usual).
Worries still remain. The Fed is resisting pressure from the White House and Washington to spur big banks to buy more Treasury bonds, Semafor reported Tuesday citing sources close to the matter. This comes after Boston Fed President Susan Collins said last week that the central bank was “absolutely” prepared to intervene if necessary. The Fed is key to the support of functioning financial markets.
While we prepare for weeks more of whiplash, the takeaway remains that everyone has a boss. Trump’s might just be the bond vigilantes.
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Here’s what a reader commented
Question: How can we on-shore our chips manufacturing capabilities?
Answer: Incentivize capex and local employment with long term guarantees, and even possibly up front seed money (carefully controlled) to assuage concerns over political instability. Make the companies’ current management and families welcome to the U.S. Continue the current Chips Act but increase funding to make it bigger and better. Also do the same with the Inflation Reduction Act business incentives to spur employment, innovation and more chip demand.
Catch up with FS Insight
We believe there are signs that the S&P 500 has made a structural bottom. There are 5 possible “shoes to drop,” which is why we expect markets to be range-bound, but this does not mean we need to make a new low.
Technical
Technology’s rebound from support last week is certainly a reason for optimism, and along with strength in Financials, it should be able to drive markets higher in the months to come.
Crypto
We aimed to reduce our stablecoin allocation from 50 percent to 25 percent and increase our relative altcoin weighting while still waiting for either a sizeable retrace or a breakout in BTC before making those adjustments.
News We’re Following
Breaking News
- Nvidia Warns of $5.5 Billion Charge on New China Export Curbs; Stock Drops WSJ
- Federal Reserve Chair Powell to Speak About the Economy BR
- 2 Protesters at Marjorie Taylor Greene Town Hall Are Subdued With Stun Guns NYT
Markets and economy
- Meet ‘Captain Condor,’ the Options Trader Whose Crew Can Move Markets WSJ
- What the Weak Dollar Means for the Global Economy WSJ
- Homebuyers rush to riskier loans, as tariff turmoil pushes interest rates higher CNBC
- Analysis: A stocks rout became a bonds rout. Is private credit next? SEM
- The Stock Market Is Looking Up. It Could Get Ugly Again. BR
Business
- Nvidia issued a big warning related to China exports. What analysts are saying CNBC
- Critical chip firm ASML misses order expectations amid tariff uncertainty CNBC
Politics
- How Harvard Ended Up Leading the University Fight Against Trump WSJ
- Biden alleges Trump has ‘taken a hatchet’ to Social Security in his first post-presidency speech AP
- Not Just ‘Rare Earths’: U.S. Gets Many Critical Minerals From China NYT
- US judge presses Trump administration on its refusal to return Kilmar Abrego Garcia AP
Overseas
- China Girds for Economic Stress of Trump’s Tariffs NYT
- Italy’s Meloni heads to Washington, carrying EU hopes SEM
Of Interest
- Exclusive: Nvidia kept some China customers in the dark about new US chip clampdown, sources say RT
| Overnight |
| S&P Futures -31
point(s) (-0.6%
) Overnight range: -88 to -3 point(s) |
| APAC |
| Nikkei -1.01%
Topix -0.61% China SHCOMP +0.26% Hang Seng -1.91% Korea -1.21% Singapore +1.04% Australia -0.04% India +0.47% Taiwan -1.96% |
| Europe |
| Stoxx 50 -0.84%
Stoxx 600 -0.91% FTSE 100 -0.48% DAX -0.69% CAC 40 -0.71% Italy -0.81% IBEX -0.33% |
| FX |
| Dollar Index (DXY) -0.63%
to 99.59 EUR/USD +0.67% to 1.1358 GBP/USD +0.27% to 1.3267 USD/JPY -0.24% to 142.86 USD/CNY -0.1% to 7.3085 USD/CNH -0.26% to 7.3099 USD/CHF -0.67% to 0.8178 USD/CAD -0.32% to 1.3911 AUD/USD +0.35% to 0.6367 |
| Crypto |
| BTC -0.42%
to 83663.01 ETH -1.57% to 1569.83 XRP -2.03% to 2.0662 Cardano -2.33% to 0.6031 Solana -2.53% to 124.48 Avalanche -1.42% to 18.75 Dogecoin -1.35% to 0.1529 Chainlink -1.74% to 12.13 |
| Commodities and Others |
| VIX +4.18%
to 31.38 WTI Crude +0.85% to 61.85 Brent Crude +0.85% to 65.22 Nat Gas -2.13% to 3.26 RBOB Gas +1.04% to 2.046 Heating Oil +0.95% to 2.098 Gold +2.29% to 3304.78 Silver +1.91% to 32.94 Copper -0.62% to 4.598 |
| US Treasuries |
| 1M -4.6bps
to 4.2432% 3M -1.1bps to 4.2859% 6M -1.3bps to 4.171% 12M -9.3bps to 3.9084% 2Y -2.7bps to 3.8176% 5Y -1.6bps to 3.9698% 7Y -0.3bps to 4.1456% 10Y +0.6bps to 4.3388% 20Y +1.6bps to 4.8334% 30Y +1.6bps to 4.7939% |
| UST Term Structure |
| 2Y-3
M Spread narrowed 2.9bps to -49.7
bps 10Y-2 Y Spread widened 3.3bps to 51.7 bps 30Y-10 Y Spread widened 1.6bps to 45.3 bps |
| Yesterday's Recap |
| SPX -0.17%
SPX Eq Wt -0.32% NASDAQ 100 +0.18% NASDAQ Comp -0.05% Russell Midcap -0.01% R2k +0.11% R1k Value -0.27% R1k Growth -0.02% R2k Value +0.23% R2k Growth -0.01% FANG+ +0.69% Semis +0.65% Software +1.26% Biotech flat Regional Banks +1.7% SPX GICS1 Sorted: Tech +0.34% REITs +0.23% Fin +0.23% Utes +0.05% Energy -0.13% SPX -0.17% Indu -0.53% Comm Srvcs -0.55% Materials -0.63% Cons Staples -0.67% Healthcare -0.69% Cons Disc -0.8% |
| USD HY OaS |
| All Sectors -3.7bp
to 450bp All Sectors ex-Energy -3.7bp to 402bp Cons Disc -5.6bp to 443bp Indu -2.3bp to 337bp Tech -7.1bp to 442bp Comm Srvcs -4.2bp to 627bp Materials -3.9bp to 430bp Energy -1.6bp to 517bp Fin Snr -7.8bp to 378bp Fin Sub -4.1bp to 301bp Cons Staples -5.8bp to 296bp Healthcare +8.6bp to 460bp Utes -4.6bp to 310bp * |
| Date | Time | Description | Estimate | Last |
|---|---|---|---|---|
| 4/16 | 8:30AM | Mar Retail Sales m/m | 1.4 | 0.2 |
| 4/16 | 10AM | Apr Homebuilder Sentiment | 38.0 | 39.0 |
| 4/16 | 4PM | Feb Net TIC Flows | n/a | -48.82 |
