Weak Economic Data Looks Positive for Treasuries, Negative for Risk Assets
From the Buzz & Banter: The pop in stocks is overdone and based on the false premise that QE was here to stay.
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Economic data was weak globally.
China missed on PMI.
Japan continues to grow its imports faster than its exports. Who would have thought that a country that is light on natural resources would have to import more when it devalues.
This morning's US data is in line with expectations. YOY CPI comes in at 1.6%. No matter how you calculate CPI (and many believe it understates real inflation) it doesn't matter because the Fed only looks at PCE. But I think the consumer faces a much higher rate of inflation than the Fed sees, and it seems likely to get worse with rising commodity prices. Michael Ashton pointed out that the rise in natural gas prices might actually reduce inflation because the rent that is used assumes it includes utilities. If utilities go up and rent paid remains the same, the rent used for CPI is de facto lower.
In the meantime, Wal-Mart (NYSE:WMT) came in with a miss and lower guidance and chose to blame smaller government payments to its shoppers rather than the weather.
I dislike all risk assets here. As I mentioned yesterday on the Buzz [subscription required] shortly after the FOMC, the post-Yellen testimony pop in stocks is overdone, and based on a false premise -- that QE was here to stay. QE is not the Fed's tool of choice anymore, and many are wondering if it isn't distorting markets more than the benefit it provides to the economy.
Look for that to trigger selling.
In this first stage (which we saw yesterday, and so far today) we will get a "taper" trade where Treasuries are also sold along with risk assets. At some point that will become a buying opportunity in Treasuries as we shift to a "risk off" trade from a "taper" trade.
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