The chatter of rage ended after the big play earlier this year in the ten-year Treasury.
But the factors that led to this brief sale to Treasurys are still within reach. The main one is the deployment of COVID-19 vaccines, as well as the huge fiscal stimulus already enacted with more in progress, the accumulated spending power in household savings and easy monetary policy.
Scott Peng, the founder and investment director of New York investment manager Advocate Capital Management, says a perfect storm is unfolding. His model estimates the 10-year Treasury yield TMUBMUSD10Y,
it will jump 162 basis points this year and another 160 basis points next year, which is well ahead of market estimates of about 17 basis points of gains in each of the next two years. The ten-year yielded 1.12% on Wednesday’s stock.
Peng, formerly Citi’s chief interest rate strategist and one of the first to spot price anomalies in Libor, says his model doesn’t even include any additional fiscal stimulus from the Biden administration, which has proposed a plan to $ 1.9 trillion coronavirus relief, as well as additional infrastructure spending.
His view of rising interest rates is critical to the historical correlation between nominal gross domestic product growth and short- and long-term interest rates in the US, UK, Germany and Japan. The long-term regression reflects a 50% ratio between GDP growth and Treasury yield since 1960, although more recent history suggests that the ratio may have declined to 27%.
Even this lower level of correlation would suggest that vaccine deployment, accumulated spending power, increased public debt, and monetary stimulus would produce higher returns.
Wouldn’t this rate hike raise alarms in the Federal Reserve? Peng estimates that the Fed should quadruple the size of its quantitative easing to offset the projected rate hike for 2021. “A $ 300 billion monthly QE rate would exceed 2020 QE and is unlikely to be sustainable during a prolonged period, especially if the economy is recovering well, ”he says.
Peng did not extend the analysis to actions, but the implications would be direct. A rise in yields will make relative valuations much less unattractive, although it could create conditions for value stocks to thrive after a decade of low yields.
The buzz
GameStop GME,
shares rose 2% in premarket trading after falling 60% to $ 90 on Tuesday. The small squeeze driven by Reddit forum users WallStreetBets had brought the shares to $ 483 last week. AMC Entertainment AMC Movie Operator,
which fell 41% on Tuesday, also rose 2%.
Amazon online retail giant AMZN,
reported on projected fourth-quarter earnings and revenue, along with news that Jeff Bezos will step down as chief executive officer to become chief executive, focusing on new products and initial initiatives. Andy Jassy, the head of its fast-growing cloud division, will take over as CEO of the entire company.
Alphabet GOOGL,
GOOG,
jumped 7% in pre-market trading, as Google’s parent company easily surpassed fourth-quarter earnings estimates, achieving an increase in both search revenue and its fast-growing cloud business.
There are a lot of benefits on the cover, including the PayPal PYPL payment service,
and eBay EBAY online auction service,
after the close of trade.
At the forefront of the coronavirus, pharmacist GlaxoSmithKline GSK,
will pay up to 150 million euros to CureVac CVAC,
develop new generation vaccines aimed at multiple variants. Glaxo will also help produce up to 100 million doses of the first-generation CureVac vaccine, a boost for Europe, which has taken time to roll out vaccines. Separately, the preliminary investigation finds the AstraZeneca AZN,
–The Oxford University vaccine provides protection for up to three months before the second dose is given. According to the COVID-19 monitoring project, new coronavirus cases in the United States fell to 115,619 on Tuesday, from a high of 243,996 in mid-January.
The economic calendar includes the ADP estimate of private sector payrolls and the services index of the Institute of Supply Management. A measure from China’s service sector came in below estimates.
The markets
The Nasdaq-100 NQ00,
contract meant a breakthrough in the future ES00,
after the results of Amazon and Alphabet. The DXY Dollar,
it was constant.
Italian shares I945,
raised expectations Former European Central Bank President Mario Draghi will become the country’s next prime minister.
The graph
In a letter to investors, hedge fund firm Crescat Capital said it is setting the stage for a massive investor shift from overvalued megacap growth funds and fixed-income securities to materials, energy and others undervalued commodities. He said if it could only focus on one chart over the next three or five years, it would be the relationship between commodities and equities. “The opportunity to buy gold stocks and sell large-cap growth stocks appears like in 1972. In just two years, in 1973-74, the S&P 500 SPX,
decreased by 50%, while gold stocks multiplied by five, ”he said.
Random readings
Speaking of Reddit posts: A study believes that the use of languages on the platform could predict future relationships.
It looks like the beginning of a script for a new Indiana Jones movie: Golden-tongued Mummies Found in Egypt.
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