This next article for Seeking Alpha is part Education and part Perspective. I decided to pull back in time and space to ‘frame’ the interest rate discussion – when to worry and why.
When Should We Worry About The Yield Curve?
That’s my Macro take, but there is also my Micro view…
For those who trade with me in my Live Trading Room, or can follow my rare sightings on Twitter, you already know my views – macro and micro – on the 10-year yield, bonds, metals, emerging markets and the US Dollar – all of which are impacted by interest rates. I believe we’re going to have more rate hikes as FOMC normalizes its Fed Funds Rate (raises), as economic data strengthens and especially as trade war currency manipulation moves currencies (FX lower, USD higher). That’s why I spend a fair bit of time getting to know rates and the yield curve so I can make Market Timing Calls for better Trading Set Ups!
Near Term Rate Spike In Progress
For the past two weeks I have been expecting a near-term, impactful Rate Spike from 2.80% in TNX. It is in progress,. and current events this week may help it along to that ‘psycological’ 3.0% level:
- Consumer prices expected at 2.4%; Fed target 2%. Consumer inflation is rising, but the pace is not accelerating – yet!
- ECB meets; Will they talk QE exit? If so, rates can spike.
- AAPL was targeted by a Trump Tweet Friday wherein he (for all intense and purposes) threatened that Apple prices would raise as a result of Trade War Tariffs with China unless Apple builds their products in the US. That’s initially inflationary.
- If NAFTA outcome is positive, rates can also spike.
If jobs are positive, rates can spike. Actually, they were positive Friday and rates spiked…
Why Interest Rates Spiked Last Week
First off ISM Manufacturing jumped to a 14-year high of 61.3 last month from 58.1 in July. Economists had forecast 57.9; any reading of 50 indicates expansion. Meanwhile ISM Services rose to 58.5 from 55.7 in the previous month – another strong reading.
Then August’s employment data came in at 201,000 jobs gained, and a 3.9% unemployment rate. The yearly rate of pay increases climbed to 2.9% from 2.7%, marking the highest level since June 2009.
Sunday night, Japan’s Q2 GDP growth was reported as the fastest since early 2016, hitting an annualized rate of 3% compared to the initial reading of 1.9%. The rate was impacted by a tightening labor market fueling automation and amid the escalating US-China trade war. Capital expenditure was a driver, revised to a 3.1% growth on the quarter from 1.3%, the fastest growth in 11 years.
My Point: Why would the Fed not raise rates?
And then, the point to worry about the Yield Curve is when they stop 😉
Thanks for reading and please consider joining me in the LIVE Trading Room where we work through Value and Momentum trade ideas and set ups every trading day.
At LaDucTrading, Samantha LaDuc leads the analysis, education and trading services. She analyzes price patterns and inter-market relationships across stocks, commodities, currencies and interest rates; develops macro investment themes to identify tactical trading opportunities; and employs strategic technical analysis to deliver high conviction stock, sector and market calls. Through LIVE portfolio-tracking, across multiple time-frames, we offer real-time Trade Alerts via SMS/email that frame the Thesis, Triggers, Time Frames, Trade Set-ups and Option Tactics. Samantha excels in chart pattern recognition, volatility insight with some big-picture macro perspective thrown in.
More Macro: @SamanthaLaDuc Macro-to-Micro: @LaDucTrading
