Recap 1-09-14: Rates Indigestion?


Are equities getting some rates indigestion again? Equity markets seem to be responding to rising yields like they did last year. The chart below shows the SPX and 10y yields in white and orange below. The horizontal white line marks the 10y yield high print through last March. The red and green vertical lines mark when the 10y yield broke to new highs and when they peaked in September, respectively. During that period, the SPX was essentially flat:

As yields hit new highs again, it appears that equity market momentum is once again slowing. Furthermore, data surprises suggest more upside for yields, even as the 3% level on 10’s has triggered some technicals related receiving recently. Forwards are pricing in a ~50bp rise by year end.

Of course, this is just a possible, casual explanation of what’s going on. But a lack of other major macro headlines makes such an explanation more likely.

Separately, here is an interesting read on Greenspan’s latest views, h/t FTA.


  • BoE kept policy unchanged as exp
  • ECB kept policy unchanged as exp. Draghi:
  1. we firmly reiterate our forward guidance that we continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time.
  2. With regard to money market conditions and their potential impact on our monetary policy stance, we are monitoring developments closely and are ready to consider all available instruments. Overall, we remain determined to maintain the high degree of monetary accommodation and to take further decisive action if required.
  3. On the basis of prevailing futures prices for energy, annual inflation rates are expected to remain at around current levels in the coming months.

US Jobless Claims declined to 330k vs 335k exp and 345k prev. The BLS could not see any real impact from the winter storm. The 4 week average declined to 349k, -10k from last week but just -20k from a year ago.

Australia Retail Sales rose 0.7% MoM vs 0.4% exp and 0.5% prev

AU Building Approvals was stable at +22.2% YoY vs 21.1% exp and 23.1% prev

China CPI declined to 2.5% YoY vs 2.7% exp and 3.0% prev

Kohlberg Kravis Roberts & Company is expanding its business of investing in distressed debt, and it said on Thursday that the amount of money raised for the new fund was double its initial goal. – Dealbook

Upcoming Data:

  • Fri: US Employment, Canada Employment, USDA Ag report
  • Mon: AU Home Loans, BoC Business Outlook Survey, Japan Eco Watchers Survey
  • Tue: France, CPI, UKPPI, US Retail Sales
  • Wed: Empire Mfg, Core PPI, UK RICS House Price balance, Australia Employment
  • Thu: US CPI, Jobless Claims, Philly Fed, NAHB Housing Market Index, Bernanke Speaks