Markets Overview

  • ASX SPI 200 futures up 0.2% to 7,450.00
  • Dow Average little changed at 33,978.08
  • Aussie down 0.2% to 0.7100 per US$
  • U.S. 10-year yield little changed at 3.5035%
  • Australia 3-year bond yield rose 7 bps to 3.21%
  • Australia 10-year bond yield rose 5.5 bps to 3.56%
  • Gold spot little changed at $1,928.04
  • Brent futures down 0.9% to $86.66/bbl

Economic Events

  • 11:00: (AU) Australia to Sell A$300 Million 2.75% 2041 Bonds

The bond-market’s bulls are poised for the first major test of 2023.

Treasuries rallied this month on widespread anticipation that the Federal Reserve is nearing the end of its interest-rate hikes as inflation comes down and tighter financial conditions cool the economy. In the coming week, traders will find out if that’s likely the case as the central bank announces its latest decision and the monthly job-market report is released.

Investors have been plowing back into bonds, drawn by elevated yields amid expectations that an economic slowdown will drive the Fed to stop its hikes and then shift to easing monetary policy later this year. Benchmark 5- and 10-year yields have dropped around 40 basis points in January as money managers and pension funds continued to shift funds from equities to long-dated bonds.

“Asset managers came into the year with large cash balances and there is a little bit of a ‘get in now before its too late’ sentiment,” said Alexandra Wilson-Elizondo, head of multi-asset retail investing at Goldman Sachs Asset Management. Investors are seeing global disinflation signs, some weaker data and “if history is a guide it shows that turning points can be abrupt.”

That bullish mood was underscored this week when investors bought much bigger slices of new Treasury debt sales than is typically seen, locking in yields that remain near the higher end of the range seen over the past 15 years. At current levels, Treasuries are seen as an attractive hedge against a recession. Signs of a such a slowdown have been mounting, with companies like Intel Corp. bracing for a weaker outlook and consumers being squeezed.

That macroeconomic outlook is expected to keep benchmark yields rangebound, supported by the twin forces of moderating price pressures and employment growth. In the face of that, swaps traders are pricing in that the Fed will raise its benchmark rate — now in a range of 4.25% to 4.5% — by a quarter percentage point on Wednesday, followed by only one more such move this year.

On Friday, the Fed’s preferred inflation measure eased to the slowest annual pace in over a year. On Feb. 3, economists surveyed by Bloomberg expect the Labor Department to report that payroll growth slowed to 190,000 in January, down from 223,000 in December.

Other key data releases include the employment cost index and job-opening figures, along with the employment and price gauges in the ISM surveys of both manufacturing and services activity.

The slew of figures leave the Treasury market at risk of a reversal if Fed Chair Jerome Powell pushes back on traders’ expectations. At the Fed’s December meeting, officials indicated policy would stay elevated during 2023 at a peak of 5.1% with no rate cuts expected, a more hawkish forecast than markets are now pricing in.

“There is tension between the market and the Fed’s estimate of policy and it may take some time to resolve over the next three to six months,” said Goldman’s Wilson-Elizondo. “Enthusiasm for buying Treasuries likely continues,” unless “inflation proves stickier” and labor-market resilience makes people think “the Fed may need to keep policy restrictive to break the back of the jobs market.”

Other News

The organizers of the Razzie Awards are listening and taking accountability — for nominating 12-year-old Ryan Kiera Armstrong for Worst Actress.

The Razzies have decided to rescind Armstrong’s nomination for her performance in the widely-panned Stephen King adaptation, Firestarter. The nomination placed the annual celebration/roast of Hollywood’s most dubious flicks at the center of a fierce backlash, which included criticism from some current and former child actors, like Devon Sawa and Julian Hilliard.

In response, Razzie organizer John Wilson (not that John Wilson) issued an apology, saying, “Sometimes, you do things without thinking, Then you are called out for it. Then you get it. It’s why the Razzies were created in the first place.”

Wilson acknowledged that nominating Armstrong was “insensitive” and called the criticism “valid.” There was also a direct apology to Armstrong, with Wilson saying, “[W]e regret any hurt she experienced as a result of our choices.”

The backlash also appeared to prompt a bit of soul-searching and reform, with Wilson saying that the Razzie Voting Guidelines would now start “precluding any performer or filmmaker under 18 years of age from being considered for our awards.”

“We have never intended to bury anyone’s career,” Wilson said. “It is why our Redeemer Award was created. We all make mistakes, very much us included. Since our motto is “Own Your Bad,” we realize that we ourselves must also live up to it.”

Some would probably argue that this change to the voting guidelines is long overdue, considering numerous child actors have been nominated for Razzies over the years. Gary Coleman was nominated in 1982 when he was 14, while Macaulay Culkin received the Worst Actor nomination in 1995 for three movies, Getting Even With Dad, The Pagemaster, and Richie Rich (he lost to Kevin Costner for Wyatt Earp). More recently, Jake Lloyd, who portrayed a young Anakin Skywalker in Star Wars: Episode I – The Phantom Menace, was nominated for Worst Actor when he was 11. Lloyd later said the bullying and criticism he received, both from classmates and the press, prompted him to leave acting.

(Rolling Stone)