A closing 10 yr yield with an 8 handle would be the first time since June and I believe will continue to move higher. A 1% yield is possible soon if a fiscal deal gets passed. The 200 day moving average is .87%. The 30 yr yield is already above its 50, 100 and 200 day moving averages and is at 1.61% today. There will be no free lunch with trillions of dollars of government spending that is being partially monetized by the Fed. Industrial metal prices as well as food prices are moving higher again today. Crude oil is the only laggard. Natural gas prices, just as we are going into colder weather, is quietly at the highest level since January 2019.
For all the disgust with energy stocks, I’m bullish for the next two years as supply cuts work along with a vaccine and recovery boosting the demand side. With respect to the supply side, the crude oil rig count is at 200. It was 683 in mid March. It was 1609 in October 2014. For natural gas, the rig count stands at 74 vs 133 one year ago. It was 967 ten years ago. Who first said low prices are the cure for low prices? I’m not sure.
10 yr YIELD
30 yr YIELD
CRUDE OIL RIG COUNT
For the 4th straight week the MBA said mortgage applications to buy a home fell for a 4th straight week, by 2.1% but still remains higher by 26% y/o/y. Most likely this is just a rest after an aggressive lift in transactions and prices. Refi’s were little changed w/o/w but are still up 74% y/o/y with the help of record low rates.
Exports in the 1st 20 days of October out of South Korea fell 5.8% y/o/y after a 3.6% gain in September but there were less business days compared to October 2019. If you just look at the average number of daily shipments, that was up 6% with particular help from China, South Korea’s largest trading partner. Semi shipments were up by 12%. Imports fell by 2.8% vs -6.8% last month. The Kospi was up by .5% bringing its year to date gain to almost 8%. The Kospi is always a cheap market because of the predominant chaebol structures but is only at 12x 2021 earnings.
September headline CPI in the UK rose .5% y/o/y from .2% but was one tenth less than expected. The core though was in line with its 1.3% y/o/y gain. Not a level worthy of zero rates or NIRP but that doesn’t matter to policy right now. The end of the Eat Out to Help Out helped to lift prices while the cut in the VAT is still in place, helping to lower prices. PPI jumped 1.1% m/o/m, well higher than the estimate of down .3% possibly in response to higher commodity prices. The UK economy is still about 10% below its pre Covid level and now has to deal with selective shutdowns. The UK 10 yr inflation breakeven was down by 2 bps but amazingly is still above 3%. The pound is up solidly back above $1.30 as it does look possible there is a Brexit deal to be had. Gilt yields are higher by 2.5 bps also in response.
UK 10 yr INFLATION BREAKEVEN