Market 11/09: 30Y auction fails, economic signals continue to warn of recession

Market report 11/09:

30-year bond auction fails, yields surge

Liquidity collapse creates largest bid/ask spread in 30-year bond auction history

Market reacts strongly, all bond yields rise rapidly

Continuing jobless claims rise to highest since April

Today's unemployment benefits report shows first signs of cracks in the labor market:

• Initial jobless claims last week fell to 217,000, down from 220,000 the previous week, hovering near the lowest levels so far this year.

• FYI: Oregon sees the largest drop in claims, while claims in California and New York rise the most

• Continuing claims rise for the 6th straight week to 1.834 million people - highest since early April 2023.

• Since the Fed began raising rates, job growth has slowed significantly. According to Apollo, job growth will slow even further in the next 6 months.

• FYI: Since February 2020, most US labor force growth has come from foreign-born individuals.

Summary of Fed officials' statements

1. Fed Bostic: Policy may be restrictive enough. Fed will maintain tight stance until inflation is ensured to return to 2%.

2. Fed Barkin: I don't think we're done raising rates; inflation pressure in services remains.

3. Market awaits Fed Chair Jerome Powell's speech (most important today).

Market expects global rate hike cycle has ended

According to Bloomberg: swaps contracts signal average rates in developed economies will stabilize in next 6 months, and fall -50 bps in 1 year.

32% of global central banks have started cutting rates, trend of central banks pausing rate hikes is increasing.

Economic indicators show financial conditions still tightening

Good news is Goldman Sachs financial conditions index turns down, after Fed boasted that free markets automatically tightened financial conditions for them.

• Interestingly, 'hard' data (official economic data) has fallen along with looser financial conditions...

• ...but 'soft' survey data (surveys on economic and business expectations from firms) remains quite high.

Liquidity in US bond market remains very poor - at lowest since 2010.

• Last time liquidity was this bad - March 2020 - Fed launched the largest money injection ever.

• Crude oil tends to follow looser financial conditions with a 2-month lag

Weak demand, asking home prices start to fall sharply

• Homebuying conditions (good for buying - bad conditions) have fallen sharply, hitting lowest since 1960.

• People now need $115,000/year income to buy a home.

  • This figure was only $75,000 in August 2020, now up 50%.

However...

• 30Y mortgage rates have largest weekly drop since July 2022 (one of the largest since GFC).

• Share of real estate developers offering buyer incentives rises to 62%.

• Prices of homes listed for sale are starting to drop sharply.

  • In October, ~25% of sellers have cut their home prices, (higher than ~17% at this time last year, FYI: lowest ~8% in 2021).

  • However, home prices have only fallen ~6% from the all-time high.

China: Deflation returns, fragile recovery

• October CPI down -0.2% y/y, sharper than expected -0.1% decline

• PPI continues to decline for the 13th straight month: down -2.6% y/y.

• China-US trade volume rapidly falling to decades-low levels.

• China's FDI turns negative for the first time => a fairly serious sign for an export manufacturing economy.

Disney earnings update

• Revenue: +5% y/y to 22.1B USD (0.2B USD below expectations).

• Non-GAAP EPS: 0.82 USD (0.11 USD above expectations).

• Operating margin:

  • Entertainment: 2% (+9pp Y/Y).

  • Sports: 25% (+3pp Y/Y).

  • Experiences: 22% (+3pp Y/Y).

Disney paid subscribers:

• Disney+: 150M (+3% Q/Q).

  • Disney+ Core: 113M (+7% Q/Q).

  • Disney+ Hotstar: 38M (-7% Q/Q).

• Hulu: 48.5M (flat Q/Q).

• ESPN+: 26M (+3% Q/Q).

Other news

1. Bitcoin surges above 37,000 USD. Market cap rises >750B USD for the first time since April 2022.

2. Astra founders offer $30M to take company private.

3. SoftBank reports $6.2B quarterly loss as WeWork collapses, tech downturn drags profits

4. $1.8B lawsuit against National Association of Realtors settled with victory for lawyers representing 500,000 home sellers in Missouri.

5. HSBC cuts Tesla price target to $146, citing one of the biggest near-term risks from famous CEO Elon Musk.