About That Rate Spike – Now up 38 Basis Points

LET’S TALK ABOUT THAT RATE SPIKE

#RateSpike #OilSpike (in progress) #InflationSpike #RateSpike

From my  #RateSpike call on 9/2, the 10-year yields have risen 38 basis points – that’s Yuge. Today alone, the volatility for this instrument was 11% which is YUGER.

A week later I tweeted my view:

My take: If NAFTA outcome is positive, rates will spike. If jobs are positive, rates will spike. If … let me think … ok, here’s one: If Trump targets Japan, rates will spike. I could do this all day.

My Point, we have moved from a tight fiscal and easy monetary policy to an easy fiscal and tighter monetary policy. Every bit of good news – like the pre-jobs print we got today exceeding expectations – will make rates rise.

And official Non Farm Payroll Jobs aren’t even out until Friday! #RateSpike

What about that Oil Spike I called? That’s in progress! You know how bullish I was Crude on 9/19 at $70 before the EIA Inventory data. Well it’s risen to near $77 and it does not look done. Sure, a Rest and Reset for both rates and oil would be great, but do you think the USD/CNH is going to sit this one out even though markets are officially closed in China? Yuan will fall to stem the FX panic from the US economy growing, Yields rising, Oil spiking. Ditto with the Euro. Another words, Emerging Markets are likely to have a small panic and that will likely beget more USD chasing – there’s a shortage of dollars and a large debt financing obligation afterall.

EURO WORRIES

OTHERWISE, IT’S A SHORT TO 1.13 AND USD RISES W RATES: 70-30 ODDS RATE SPIKES UNTIL EUR/USD 1.13 

So my expectation is that the cycle of RATE – OIL – WAGE- INFLATION – RATE spikes is just beginning.

LET’S GO TO THE CHARTS!

Here are some charts on Yields and Bonds to keep an eye out on should Powell not talk down their rate hiking path anytime soon:

AND WHAT ABOUT EQUITIES?

During the February bond yield surge, FAANGs dropped 12-14%. I think this time will be impactful in its own way but impactful nonetheless.