Recap 2014-09-26: Time to BTD?


I noted last week that this week was historically the weakest of the year, but that the bias for the rest of the year is higher. Yesterday I noted that HY CDX were near the range highs for the year. Meanwhile real US yields have been falling. A fair bit has been made about the recent Fed comments on the Dollar move, but note that they may be more of a concern about inflation in general, rather than the dollar, per se. 10y inflation break evens are now at the lowest level since mid 2013. And the 5y5y metric has fallen 30bps in 1.5 months and is actually already at the lows from 2012 and 2013!

Europe probably has something to do with it, but this is still a pretty major event – the last time 5y5y breakevens were appreciably lower was in the 2011 – when people thought the EU would break up, and the US unemployment rate was at 9.1%! Anyway, the point is, I think this is something Fed is probably fairly concerned about here, and could lead to a fairly dovish outcome in the October FOMC statement if it doesn’t reverse. I noted last week that lower breakevens could be bullish for equities – historically, 10y Breakeven (orange below) prints below 2.0% have marked good entry points for SPX. We’ll see if that is the case again.

Meanwhile, the technical picture is positive. Quantifiable Edges notes that after bounces quickly faily, there is an upside edge:

@JlyonsFundMgt notes that NYSE 90% down volume days have historically tended to mark short term lows:

Also, next week we get the month start positive seasonality bias.

And finally, note that the PE ratio has been in a rising triangle and it has just hit the rising trendline:


  • Japan CPI declined to 3.1% vs 3.2% exp and 3.3% prev. The core measure was stable at 2.3% as exp.
  • German GfK Consumer Confidence declined to 8.3 vs 8.5 exp and 8.6 prev
  • French Consumer Confidence was stable at 86 as exp
  • Benoît Cœuré: For a stronger rebound in investment the private non-financial sector needs to raise equity. To revive economy recapitalisation not only of banks but also a repairing of private sector balance sheets is needed


  • Sun: Bernanke Speaks
  • Mon: German CPI, US Core PCE, Pending Home Sales, NZ Building Permits, UK GfK Consumer Confidence, Japan Jobless Rate, NZ Business Confidence
  • Tue: Month End, UK House Price, EU Employment, EU CPI, Canada GDP, Chicago PMI, US Consumer Confidence, Japan Mfg PMI, AU Retail Sales
  • Wed: EU PMI, US ADP, ISM, Australia New Home Sales, Building Approvals, Trade Balance
  • Thu: ECB, US Jobless Claims, Australia Service PMI, China Non-Mfg PMI, Japan Service PMI

One thought on “Recap 2014-09-26: Time to BTD?

  1. Sir,

    How do you interpret the 5y5y breakeven curve? My understanding is that this represents where the market sees 5 year inflation in 5 years from now, but I am struggling to understand what it means when this diverges from the 10y spot breakevens.

    Thanks for your time

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