China’s Yield Curve Inverts (Small Beans Relative to Venezuela’s Curve Inversion And 2,713% Inflation Rate)

Inverted sovereign yield curves are generally bad news. And China’s inverted yield curve is no different. The 5Y to 10Y segment of China’s sovereign curve has inverted … again.

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But before anyone gets hysterical, the rest of China’s sovereign curve is upward sloping like the USA (blue for China, green for the USA).

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For comparison sake, I am including the mac-daddy of curve inversion: Venezuela (red line). Their 3Y sovereign yield is a gut-wrenching 58% while their 20Y yield is lower at 22%. And their 2,712.88% annual inflation rate.

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US Housing Starts And Permits Plunge In September As Fed Raises Rates

The housing construction numbers for September were not great. 1-unit detached starts declined -4.60% while 5+ unit starts (multifamily) declined -6.23%.

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Permits were off for 5+ unit (multifamily) at -17.43% while 1 unit permits rose 2.38% in September.

As a reminder, The Federal Reserve dropped their target rate as a result of the 2001 recession and 1-unit starts took off. Construction was so hot that The Fed had to raise their start rate to cool-off the construction bubble. Rather than cool-off the construction bubble, The Fed sent it into deep freeze.

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Alas, there wasn’t a Fed Funds rate reaction during the housing bubble, but there appears to be a negative reaction to multifamily (5+ unit) starts since The Fed began jacking up their target rate.

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And with an 84% implied probability of a December rate hike, we should watch starts and permits carefully over the next couple of months.

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And here is the path of future rate hikes (forward curve). As Samuel L Jackson said in Jurassic Park, “Hold on to your butts.”

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The International Bubble Team in action!

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Inflation Warning: US Import Prices Rise 2.7% YoY In September (US Export Prices Rise 2.9% YoY)

If you are looking for inflation that is seemingly missing, try the US import and export prices. US import prices by end use rose 2.7% YoY in September and US export prices by end use rose 2.9% YoY.

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Since John Taylor is being considered from The Fed  Chair, let’s take a look at The Taylor Rule which uses Core PCE price growth YoY as its measure of inflation.

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Since Core PCE Price growth YoY roughly follows import prices YoY, let’s see if we get that turnaround in Core PCE Price growth that has been hovering.

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Bear in mind that gasoline and diesel prices rose quite a bit in September with gasoline prices falling in October. The Fed doesn;t consider energy prices in their inflation calculations.

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Take import prices. Once we remove petroleum prices, import prices YoY grew at only 1.2%.

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Yes, inflation (if you ignore energy) is still MIA (missing in action).

“I’ll just erase inflation but taking out energy prices.”

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US Treasury 30Y-5Y Slope Flattens To Lowest Since Mid-Nov ’07 As M2 Velocity Hits All-time Low

The US Treasury curve slope (30Y-5Y) continues to flatten and has just hit the low point since mid-November 2007, nearly a year before The Fed’s annoucement of QE1 (their first round of asset purchases).

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And as of Q2 2017, M2 Money Velocity has sunk to its all-time time low.

Here is photo of The Fed announcing their QE1 asset purchase program.

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And here is The Fed signalling a rate increase at their December FOMC meeting.

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US Treasury 30Y-5Y Curve Slope Flattest Since Beginning of The Great Recession

The persistent flattening of the Treasury yield curve appears to still have legs, and that may be a sign of economic trouble ahead. On Wednesday, the minutes of the Federal Reserve’s September meeting revealed policy makers’ resolve to stick to their tightening path. The difference between five- and 30-year yields fell below 93 basis points, near the lowest since the start of the last recession. Five-year Treasury notes are among the most sensitive to Fed policy.

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And since 1992, the 30Y-5Y curve slope is deteriorating as if the US is approaching another recession.

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With The Fed talking about raising their target rate in December, is this the end of The Fed’s Snake Oil? Or just the beginning of QE4?

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Core Inflation For August Falls To 1.3% YoY, Lowest Since 2015 (Home Prices Growing at 6.25% YoY)

Federal Reserve Chair Janet Yellen kept saying that 2% inflation was just around the corner, then recently proclaimed that 2% inflation might not be attained for 2 years.

Core inflation for August fell to 1.3% YoY while MoM core inflation fell 0.1%. Both below expectations.

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Core PCE Prices YoY are the lowest since 2015.

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Real personal spending fell -0.1% MoM, in line with expectations.

Want more than 2% inflation YoY? Try adding some home prices!!! Like the FHFA Purchase-only home price index YoY which is growing at 6.25% YoY.

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Here is Fed Chair Janet Yellen preparing for her next career as a fortune teller.

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