PRICE WARS AND TRANSITORY YELLENS
Summary: In the wake of suspiciously weak American consumer price data for March and April, first Switzerland reported a negative, deflationary May CPI. It was quickly followed by European flash estimates also for May which unexpectedly undershot the ECB. Right when prices were supposed to be taking off, they are not. It is somewhat reminiscent of 2017’s wireless price war. Not specifically the war itself, rather the conditions which led up to it then came afterward. What Verizon and Janet Yellen can tell us about the mysteriously weak price changes in the middle of 2025.
FISCHER-ING FOR DECOUPLING
Summary: Sweden is the latest to show negative GDP in Q1 even before getting to tariffs and the payback, joining the globally synchronized ranks of Japan, Britain, America. The bigger threat moving forward isn’t trade wars, it’s the distortion tariffs had already created from late last year. Comparing its effect this time around in 2025 to the supply shock in 2021-22 produces some eye-opening interpretations. In addition, the ISM’s manufacturing PMI for may suggests the payback hasn’t really started no matter how big while construction spending adds more cyclical clarity on weakness - if the data is good.
WHY SO GREEK
Summary: What Australia’s central bank did Tuesday, Sweden’s repeated yesterday. They call this forward guidance, and have even invented a whole theory behind it with special cases (styled in Greek references to make them sound weighty and important). Instead, the only part which really matters is why they feel it necessary to undertake these performances. Reasons which were adequately spelled out by Canadian updates, plus a possible puzzle in American home buying - as in, not buying.
NO PLACE FOR POLITICS
Summary: Catching up on March’s TIC from last Friday. There were a number of noteworthy results in it, everything from more resales, near-record China selling, deflationary correlations galore, and a sudden appetite by American banks to lend to Emil (at least to parties located near him). China, Japan, Cayman Islands, Treasuries being sold, repo being done, exchange values being set. Eurodollars everywhere leaving no room for politics.
IT’S NEVER WHAT YOU THINK
Summary: With a little more hindsight, we can look back on the events of early April and appreciate them for what they really were: pure liquidations. All the telltale signs were there, now exposed with more perspective. Going back into some of the more infamous monetary events of the past decades provides some insights into two key common elements that very likely still apply to the current case. Even as the financial world cannot re-risk fast enough…because it can’t.
INTERFERNCE REVERSION
Summary: OPEC’s action and oil’s fall didn’t happen in isolation, nor were they unexpected. WTI closely corresponds with a range of financial signals starting with bond yields (2s!) and swap spreads. As much as central banks have been interfering in rates like the cartel in oil, it could never last given the growing deflationary confidence coming from the deep fundamentals. Knowing how and why OPEC and central banks get these wrong simply confirmed the eventuality. That collision on display yesterday in Riyadh was again on display today in Tokyo. BoJ moved one step closer to truth.
VISUALIZING THE INVISIBLE AT WORK
Summary: Following from negative Q1 GDP and final sales (of domestic product), the BEA and BLS came together to find negative productivity, too. Though this is merely a remainder between series on output and hours, its history closely aligns with economic trends throughout. Productivity measures also aid in explaining those trends which otherwise have confounded policymakers and Economists. What these now negative numbers provide is more concrete backing for the sharply negative sentiment expressed all over, including today’s latest from the Fed itself.
MAX MFI UNCERTAINTY
Summary: European bank data showed another massive increase in MFIs already-considerable government bond holdings. That makes three straight months, with mid-2020 the only period with more. The only other two comparisons are 2009 and 2012. In short, European banks are up to something serious. Recession risk is one thing, but what unites each of these prior times is monetary deflation, with crisis proportions. In addition to examining those, also an update to America’s Beveridge Curve and how it aligns with plummeting consumer confidence.
IT ONLY SEEMS LIKE A PARADOX
Summary: Faced with a prospective global downturn buffeted by the possible reverse to a stock bubble , the risks of financial volatility are slightly elevated, to put it mildly. This unfortunately puts central banks on the spot and back in the spotlight and raises several questions. It’s not can they be effective if push comes to shove, rather was the central bank idea ever viable at any point? The theory has been tested thoroughly if only due to what at first seems to be the central bank paradox.
THE ONGOING BASIS TRADE FALLOUT
Summary: While repo and the Treasury market are calm again today, the issue of liquidations in the market continue to be raised. Officials are pointing to a “toolkit” which includes regulatory changes as well as rejiggering bond/note auctions to enhance, supposedly, buying power. Also, we look at the potential for a “hedge fund” bailout and just as importantly why no one will address the real problem as it is at its source. Finally, should more basis trade, reserve-manager selling erupt, we’ll examine what that might mean for rates and Treasuries overall.