FX above stocks, bonds and company surveys
Here are charts reflecting weakness in asset portfolios, business surveys and consumer sentiment. The simultaneous decline of various Fed and non-Fed (top panel), fall and prices suffering a loss of over $23 trillion (middle panel) and flattening (bottom panel).
The latter illustrates that even bond vigilantes are increasingly skeptical of the Fed’s latest policy change. Don’t get caught up in the fancy graphics and ask instead “how can I trade these ideas?” and “what is the realistic timeframe?” Let’s see.
The continued slowdown in the Philly Fed survey, , is noteworthy, but no recession problem is serious enough until the ISM joins its manufacturing counterpart at two straight months below 50 to signal a contraction of conditions.
the The time lag issue with this requirement is that by the time we get below 50the conditions will have become dire enough that you are not expecting a monthly statistic.
The “market” response to the above deterioration is reflected in the bear market in stocks and bonds…the first of its kind since the early 1980s. Such a loss in institutional portfolios may be somewhat mitigated by high levels of cash allocation.
Next Monday is the Memorial Day holiday in the United States. But later this week will have the release of the two ISM surveys and the May report. It is too early for such reports to reverse or halt the Fed’s combative stance.
Yet, we must continue to monitor and bond yields. FX traders are already putting more weight on the idea of reducing the US yield advantage (see USD’s limited rebound during last week’s market turmoil).
Bond bulls could be even more excited about a bigger pullback in yields, such as a break below 2.60% 10-year. Bond bears will need a proper close above 3.0% to restore their confidence. No fireworks are expected as long as yields stay within this range.
FX, however, is already ahead of the curve, as we have been gaining, and for the past 2 weeks.