Couple things on CPI. First team transitory/reopen wins and it's just fair.
Still some fair hikes in love motels but overall its calmer. 1/x
What I find interesting is shelter rent though.
First because we have a continuation of the "cheap states" inflation.
Detroit continues to rise.
Driven once more by the nice stuff.
Thank you Blackrock. 2/x
One thing to keep an eye on is the fact that OER (which is biggest weight) is going much faster than Rental.
And that is starting to feel a touch odd to say the least. 3/x
But more importantly the risk is that low incomes feel a bit disinfranchised as per the ny fed consumer survey.
There is a high uncertainty for that group reg home prices increases and I imagine that is driving why more and more people are feeling worse off from last year. 4/x
I think the Fed is at much more complicated crossroads than we believe.
The claims data and delta variant are showing that there is more risk of delays to people going back to work than the latest NFP might make us think.
And that will drive wage inflation.
5/5
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As rates continue to rally I'm starting to worry we might get some more pressure in EUR rates.
There's been decent unwind of shorts in USD and some decent reduction in EUR this week. 1/x
Trend Followers have had similar momentum with decent buying of govies (and selling of commodities). 2/x
What's even more striking at the moment is that they have now moved into USD 5s30s flatteners.
And they have reduced their EUR steepener extensively. 3/x
A couple recent studies in the US which make me believe the OER rise will not be as bad as we believe despite a red-hot housing market.
1/x
First is the NBER study looking at where people moved during COVID.
They didn't go far and ended at the periphery of the city rather than move to smaller cities/towns. nber.org/papers/w28876
2/x
The other is a blog post by Corelogic about how rents have evolved in Covid time.
Seems it is rents from "detached" housing which has seen the rises.
Which would make the link with people moving to the "donut" of the large cities.
3/x
So a milestone has been reached.
5k followers.
It feels weird as I still struggle with the idea so many people could be interested in what I have to say.
In a sense it is very humbling.
So maybe time for a couple background items.
I’n obv French (from the wine selection) and from the western region of Brittany.
Is there any reason to be proud? None. But nonetheless I do feel it is my home and love this land of mine.
I studied engineering in a grande ecole and finance. Amusingly I was specialising in AI before we called it such (optimal control).
Everything is a min max problem. Or a tropical algebra.
We’re starting to see some nervousness amongst market participants with regard to rates moves and the positioning.
All my positioning trackers continue to show market quite short rates, though there has been some decent change by some players.
1/x
In particular a couple things strike me:
CTAs are now NOT forced sellers. Ie a move higher in rates is not making them increase their FI shorts.
Here is the current positioning, and a move of 10bps higher in the next month will not force them to add to their shorts. 2/x
Here is how that would look like in Bunds :
a sell-off of 25bp (red line) brings positioning from -31% to -55%
a rally of 25bp (blue line) brings its from -31% to +20%. 3/x
Listened to the latest OddLots with @econjared (thanks @BRzymelka for h/t).
The inflation discussion continues as the data keeps its variance. One thing is certain: the Fed will struggle like us to read any short term dynamics out of those prints.
1/x
I believe we can take two points out of this podcast:
a)The WH wants workers to get back bargaining power
b)Companies/Investors are cash rich but don’t invest in long term projects: taxes are a way for government to fix that
2/x
There has been a confiscation over the last decades of the bargaining power of workers by companies (same trend everywhere) as we moved into more services economies.
But the latest “gig economy” only amplified this issue.
3/x
Quick thread here as I get a lot of questions with regards to “why the risk-off”.
• SPX Options expired last week dropping a huge amount of gamma which was protective of downside short term. 1/x
• CTAs are better buyers of US Bonds
To give you an idea the 30y UST signal is -50%.
If we sell-off 25bp in the next month that moves it to -62% but if we rally 25bp it moves it to -10%.
2/x
That evolution is only starting to be priced in the rates vol market.
Here you can see the tails for 3M expiry swaptions. The receiver vols (ie the ones for lower rates) have come back, but we're still far last month's vols esp 3M>10Y -25bp. 3/x