June 8, Wile E Coyote
–As mentioned yesterday, Nasdaq posted a key reversal, which has worked as a pretty good signal recently (new contract high, outside day, closed lower). Today stocks are lower, as the G7 kicks off under a cloud of acrimony. Yesterday’s story appeared to be mostly about Brazil as the currency tanked and Bovespa index fell 6% at one point. However, Italy is still in the mix, with the banking index pressing new lows again. US rates
fell across the board, with tens falling 4.1 bps to 293.3. Late in the day there was a surge in TYU up to 120-00 which quickly fell back, with some pointing to a fat finger, but this morning TYU is nearing yesterday’s high. Typically when there is a gap type move of that sort during the day, the extreme is almost always revisited within a few sessions.
–The eurodollar curve flattened marginally, but it was enough to send the red/gold ED pack spread to a new recent low of 12.375 bps. March’20 to Dec’20 ED contracts are within 3 bps of each other, (9700.5 to 9697.5). Bernanke says that gov’t stimulus is coming at the wrong time, and when it runs its course by 2020 the economy will face a Wile E Coyote moment of running off a cliff with nothing but air below. The eurodollar curve has more or less been forecasting the same outcome.
–As mentioned yesterday, the Fed’s flow of funds (Z.1) report shows that domestic non-financial debt grew at 7.2% in Q1, but the household portion was just +3.3%, Business and Corp +4.4% and the Federal Gov’t +15.3%. I used to consider the three sectors (HH, Biz and Fed Govt) about equal in size. For example in Q1 2014, debt outstanding was HH 13.7T, Biz 11.4T and Fed Govt 13.9, so HH and Fedl Govt were almost exactly equal. In yesterday’s report, HH is 15.7T and Federal Govt is 17.1T. So why aren’t yields going up? Look at Japan.
