The Macro Situation
Dr. No (noun):
- a Chinese-German scientist bent on destroying the US space program;
- a rogue Harvard economic scientist bent on manipulating long-term treasury yields to exacerbate inflation.
― New Entry in the Updated Devil’s Dictionary
The next chapter of the bond narrative involves the role of yields serving as a finance tool that acts like interest rates — i.e., high yields can be used to increase borrowing costs. Under current conditions, the sweet spot for the 10-year yield is somewhere between 5% and 4%, not too high for borrowing, not too low to add money to the economy and spur growth.
This past week the yield on 10-year treasuries (4.646%) dropped 34bps from its previous closing high on Oct 19 (4.9880%). A dip below 4% may prompt the Fed to define further what it means by keeping monetary policy in “restrictive territory”.
Consumer sentiment came in lower than expected according a University of Michigan survey. Sentiment fell for a fourth straight month, with the cost of financing a home as a major sore spot.
Meanwhile, the US labor market remains strong with 3000 fewer jobless claims than the previous week (217,000 down from 220,000).
Crude Oil (77.34) continues its slide due to weak Chinese exports, which fell for a sixth straight month.
Overall, these points suggest that the economy is slowing as the FED has desired, but without contracting.
- Todd Mei, PhD and Sebastian Purcell, PhD
AI Sentiment Report
The following sentiment scores use ChatGPT as part of the AI tech stack to track sectors as leading indicators. (Lesson 4 of The Art of The Bubble covers the selection of lead indicators for bubble trades). The scores are most indicative for the next day of trading (a Monday), but they appear to set the general tone for the next week.
The methodology employed is based on this peer reviewed academic article, which produced 550%+ results in back tests over a 2 year time frame. We consider 4 and 5 scores to be positive, but please bear in mind that the AI model is still in its validation phase.
-The Research Team:
Dom Viera, Samantha Russell, Nicole Zinuhova, Aiza Malik
Happy Trading!!
