With another tax related rally over the past week (we’ve certainly had many), Investors Intelligence said Bulls rose 2.2 pts w/o/w to 64.1, just off the 30 yr high of 64.4 seen in early November. The 1987 peak was 65. Bears were little changed at 15.1 vs 15.2 last week. The spread of 49 is 1 pt off the 2017 high and 1.5 pts from the 1987 level reached. For more than 2 months Bulls have been above 60 and I’m not sure that’s ever happened before, even in 1987. The Bulls for sure have been dead right.
The MBA said mortgage applications to buy a home fell 5.5% w/o/w and the y/o/y gain has slowed to about nothing, up just .8%. Refi applications were down by 3.2% w/o/w and 14.4% y/o/y. Two things on this: 1)Don’t pay attention to this data at the end of the year because of the holidays, 2)mortgage rates are about to rise in response to the 11 bps rise in yields since this week’s data was compiled.
As expected the Swedish Riksbank is officially ending its QE program by no longer expanding its balance sheet further. They will though go the reinvestment route for now. They also said they will “begin slowly raising the repo rate in the middle of 2018” from the current level of -.50%. Here is another central bank that is trying to extract itself from the addiction of QE and NIRP. The Swedish Krona is up by a half of a percent vs the US dollar and the euro. The Stockholm stock market is down by .60% and is now 4.5% below its 2017 peak seen in November. November was also the peak seen for European stocks generally. The Swedish 10 yr yield is little changed after rising by 8 bps over the past week to the highest in 5 weeks. When they start hiking rates, it will be the beginning of the end of the negative interest rate experiment which I still call a Weapon of Mass Confiscation.
While US Treasuries are little changed today after the sharp two day selloff, European bonds are weak again. The German 10 yr bund yield is now up 10 bps this week to .40%, a 5 week high. Their 2 yr yield is the least negative since early August. Germany reported its PPI figure for November and the m/o/m gain slowed to .1% vs the estimate of up .2%. The y/o/y gain was 2.5%. PPI ex energy was higher by 2.3% y/o/y. German 10 yr inflation breakeven is lower by 1 bp in response but just off a 10 month high at 1.29%. This stood at .95% back in June and peaked in February at 1.35%. I’ll repeat my belief that higher than expected inflation prints in multiple places will be a surprise in 2018. Also, the bond bull market ended last summer after Brexit and the European bond market is a train wreck waiting to happen that will affect rates globally.
With commodity inflation and the base metals, copper has rallied back to a one month high as has the Journal of Commerce Index of raw materials. The implied inflation rate in 10 yr TIPS is unchanged at an 8 month high of 1.93%.
JGB yields followed US and European ones higher overnight. The 10 yr yield rose 2 bps to .06% which is the most since November 1st. The 40 yr yield was up by 1.5 bps to .98%. Expect the BoJ to allow some steepening in 2018 and if the case, keep your eye on Japanese bank stocks which broke out last night to the highest level since December 2015 with a 1.9% rally. The Topix itself was up by .3% to the highest level since November 1991 (still 37% below its December 1989 top) and the Nikkei was up by .1%.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.