The talk of a taper cholera ceased, after the great movement at the beginning of the year in the 10-year Treasury.
But the factors that led to this short sale in Treasurys are still at hand. The main ones are the launch of COVID-19 vaccines, as well as the huge fiscal stimulus already adopted with several in progress, renewed spending power in household economies and light monetary policy.
Scott Peng, founder and investment director of New York investment manager Advocate Capital Management, says a perfect storm is breaking out. Its model estimates the 10-year Treasury yield TMUBMUSD10Y,
will increase 162 basis points this year and another 160 basis points next year – well ahead of market estimates of about 17 basis points of gains in each of the next two years. The 10-year share yielded 1.12% in early Wednesday’s stock.
Peng, formerly Citi’s chief interest rate strategist and one of the first to notice pricing anomalies in Libor, says his model does not include any additional fiscal stimulus from the Biden administration, which has proposed a coronavirus aid plan. $ 1.9 trillion, as well as additional infrastructure spending.
His view of rising interest rates is key to the historical correlation between nominal gross domestic product growth and short- and long-term interest rates in the US, the UK, Germany and Japan. The long-term regression reflects a 50% ratio between GDP growth and the 1960 treasury yield, although more recent history suggests that the ratio could have fallen to 27%.
Even that lower level of correlation would suggest the launch of the vaccine, renewed spending power, increased public debt and the monetary stimulus would produce higher returns.
Would such an increase in rates not trigger alarms at 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 QE rate of $ 300 billion a month would exceed QE 2020 and is unlikely to be sustainable for an extended period, especially if the economy recovers well, ”he says.
Peng did not extend his analysis to shares, but the implications would be simple. An increase in yields would make relative valuations much more unattractive – although they could create conditions for stocks to thrive after a decade of underperformance.
Buzz
GameStop GME,
shares rose 2% in premarket trading after falling 60% to $ 90 on Tuesday. The short run led by Reddit WallStreetBets users led the stock to $ 483 last week. AMC Entertainment AMC,
which decreased by 41% on Tuesday, also increased by 2%.
Amazon AMZN online retail giant,
reported fourth-quarter earnings and revenue, along with news that Jeff Bezos will step down as CEO to become chief executive, focusing on new products and early initiatives. Andy Jassy, head of its fast-growing cloud division, will take over as CEO of the entire company.
Alphabet GOOGL,
GOOG,
grew 7% in premarket business as parent company Google easily beat fourth-quarter earnings estimates, growing both its search revenue and its rapidly growing cloud business.
There are a number of earnings on the deck, including the PayPal PYPL payment service,
and eBay EBAY online auction service,
after the close of trade.
On the coronavirus front, the pharmaceutical product GlaxoSmithKline GSK,
will pay up to EUR 150 million to CureVac CVAC,
to develop next-generation vaccines that target several variants. Glaxo will also help produce up to 100 million doses of first-generation CureVac vaccine, a boost for Europe, which has slowly launched vaccines. Separately, preliminary research finds AstraZeneca AZN,
– The Oxford University vaccine provides protection for up to three months before the second dose. New coronavirus cases in the United States fell to 115,619 on Tuesday from a peak of 243,996 in mid-January, according to the COVID-19 follow-up project.
The economic calendar includes the ADP estimate of private sector wages and the services index of the Institute for Supply Management. A measure of China’s services sector came under estimates.
The markets
Nasdaq-100 NQ00,
the contract led to an advance in ES00 futures stocks,
according to Amazon and Alphabet results. DXY dollar,
it was constant.
Italian stocks I945,
Exceeding expectations, former European Central Bank President Mario Draghi will become the country’s next prime minister.
Chart
In a letter to investors, hedge fund Crescat Capital said it was ready for a massive change in investors from overvalued megacap growth funds and fixed income securities, and in materials, energy and other undervalued commodities. He said that if he could focus on a single chart for the next three to five years, it would be the commodity / stock ratio. “The opportunity to buy gold shares and sell shares of large overvalued capital growth appears like 1972. In just two years, in 1973-74, the S&P 500 SPX,
it fell by 50%, while gold stocks rose fivefold, “he said.
Random readings
Speaking of Reddit – a study finds that the use of language on the platform could predict future breakdowns of the relationship.
Sounds like the beginning of a script for a new Indiana Jones movie – golden-tongued mummies found in Egypt.
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