Today - Thursday, September 3, 2015
Wednesday, September 2, 2015
- The $191B California State Teachers' Retirement System - the country's 2nd largest pension fund - is considering the move of up to $20B into Treasurys, hedge funds, and other investments hoped to perform well should markets tumble, according to the WSJ.
- The proposal - called "Risk-Mitigating Strategies in internal Calstrs documents - will be discussed at a meeting today, though a final decision won't be made until November.
- The strategy is notably different from that of the country's largest pension fund which resides right down the street - the California Public Employees Retirement System last year decided to exit all hedge fund investments.
- Several of the Federal Reserve districts reported increasing wage pressures thanks to tightening labor markets - a distinct change from previous Beige Books in which wage pressures have been described as isolated to certain industries.
- Overall, the report - absent what's going on in the markets - would have done nothing to halt the march to a September rate hike.
- Beige Book
- August's 190K jobs added was just shy of estimates for 201K. July's 185K gain was revised lower to 177K, and June's 237K to 231K. Revisions were made to months before that - in total, they're not material.
- The average pace of job gains in 2015 of 195K stands against 248K for the last six months of last year.
- Full report
- The 10-year Treasury yield is flat at 2.16% and stock index futures remain higher by about 0.6%.
- ETFs: IEF, PST, IEI, TYO, DTYS, UST, VGIT, TBX, SCHR, GSY, TYD, ITE, DTYL, DFVL, FIVZ, TBZ, DFVS, TYNS, SYTL
- "The global economy's finance-based spine is so out of whack that it is in need of a major readjustment," writes Bill Gross in his September Investment Outlook. "In this case, even the best of chiropractors could not even attempt it. Nor would a one-off fed fund increase straighten it out."
- He's still of the belief that the Fed should go ahead and boost rates in September, but the accompanying language needs to be very carefully crafted to maybe even suggest a "one-and-done," for at least for the next six months.
- "The Fed is beginning to recognize that 6 years of zero bound interest rates have negative influences on the real economy – it destroys historical business models essential to capitalism such as pension funds, insurance companies, and the willingness to save money itself. If savings wither then so too does its Siamese Twin – investment – and with it, long term productivity – the decline of which we have seen not just in the U.S. but worldwide."
- ETFs: AGG, BND, BOND, PTY, RCS, DBL, BTZ, HTR, PCM, SCHZ, JHI, BHK, TAI, LAG, JMM, ICB, VBF, FBND, PAI, SAGG, GBF, IUSB, VBND
Tuesday, September 1, 2015
- The August NFP number has has a history of disappointing, says Deutsche Bank, forecasting a 170K jobs print vs. consensus at 220K. Wrightson ICAP is shaving 40K from that 220K thanks to August's pattern of falling short, and Stone & McCarthy has brought its estimate down to 220K from 250K due to the calendar.
- Should Friday's report indeed disappoint and the markets react poorly, it could mean the end of any chance for a rate hike later this month, says Deutsche.
- In today's action, the 10-year Treasury yield is off just four basis points even as U.S. equity markets tumble more than 2%. Expect to hear more of the newest meme: With the Fed having ended QE and China being forced to sell some of its massive stash of Treasurys to cover sizable capital outflows from that country, where will the marginal buyer of U.S. government paper come from?
- TLT +0.3%, TBT -0.6%
- Previously: Deutsche: Central banks to unload $1.5T in FX reserves (Sept. 1)
- ETFs: TBT, TLT, TMV, TBF, EDV, TMF, TTT, ZROZ, TLH, SBND, VGLT, UBT, DLBS, TLO, PLW, STPP, GOVT, FLAT, FTT, TENZ, LBND, EGF, DLBL, TYBS, VUSTX, TAPR
- Market turbulence and weakness overseas could mean less confidence inflation will move back towards the Fed's 2% target - one of two condition necessary for tightening policy - says Boston Fed President Eric Rosengren.
- "Without an expectation of growth above potential and further tightening of labor markets, I would lose my primary rationale for a forecast of rising inflation, diminishing my confidence that inflation will reach the 2% target within a reasonable time frame."
- Rosengren is not a voter on the FOMC this year, but tends to lean dovish.
- Trying to counter capital outflows thanks to slowing growth in China, low oil prices, and potentially rising U.S. interest rates, central banks could sell $1.5T in FX reserves by the end of next year, says Deutsche's George Saravelos.
- "The risks are it's actually faster than that," he says. Rabobank estimates China - with about $3.65T of reserves (mostly U.S. paper) - sold as much as $200B in the last few weeks of August alone.
- Mulling a combination of China selling and the Fed unwinding its QE, Saravelos says the pressure on Treasurys could force the Fed to rethink its plans.
- ETFs: IEF, PST, IEI, TYO, DTYS, UST, PLW, VGIT, GOVT, TBX, FTT, SCHR, GSY, TYD, ITE, DTYL, EGF, DFVL, FIVZ, TBZ, TAPR, DFVS, TYNS, SYTL
- Headlining the unexpected decline in the August PMI to 51.1 from 52.7 previously was a big drop in New Orders to 51.7 from 56.5.
- Production fell to 53.6 from 56.0. Employment 51.2 vs. 52.7. Supplier Deliveries 50.7 vs. 48.9. Prices 39.0 vs. 44.0. Backlogs 46.5 vs. 42.5. Exports 46.5 vs. 48.0.
- Already lower on the session as stocks tumble, the 10-year Treasury yield is mostly ignoring the soft PMI, still down five basis points at 2.17%.
- TLT +0.4%, TBT -0.8%
- ETFs: TBT, TLT, TMV, TBF, EDV, TMF, TTT, ZROZ, TLH, SBND, VGLT, UBT, DLBS, TLO, TENZ, LBND, DLBL, TYBS, VUSTX
- Previously: ISM Manufacturing below estimates for August (Sept. 1)
- Full report from the ISM
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