Rising sovereign yields are making some equity investors nervous: “underpinning high share prices are rock bottom interest rates, and once yields climb companies will require stronger earnings growth to support their current valuations…’What has been scary about the last couple of weeks is that rates have been rising without a clear improvement in the economy.’” Speaking of which, producer prices fell by 0.4% in April vs. an expected rise (duh) of 0.2%. “Last month, the volatile trade services component, which mostly reflects profit margins at retailers and wholesalers, fell 0.8 percent after slipping 0.2 percent in the prior month.” ICYMI retail sales weren’t exactly the rate-hike-hero everyone was hoping for: “while April’s payroll employment report put a Fed rate hike back on the table yet again for June, the (weak) retail sales report arguably took it off the table — yet again. That should have been bullish for bonds. Instead, the dollar took a dive on the soft-patch sales report. The weaker dollar lifted the price of precious metals and oil…which also unnerved bonds.” Speaking of which, a weaker dollar is the most crowded trade among lol no i’m kidding…kind of: “with the dollar expected to languish, some traders sank their money into assets that had been flattened by the dollar’s rally,” e.g. oil, euro, EM, sovereign bonds of Russia that kind of stuff. “There is an element of reversal,” is something people are saying. But let’s get back to interest rates: “the US bond yield has been joined at the hip with the German one all year…A 2% bond yield looks attractive for the US 10-year Treasury given the subdued outlook for the Fed’s rate hiking. The problem is that if the German yield gets there, the US yield will be closer to 3%. That would make it even more attractive as long as you didn’t buy the bond at 2%.” Speaking of German yields, “the government bond selloff has been violent indeed, and has had its biggest effect in Europe (see rollercoaster)…the (German) 10-year yield, now around 0.74%, is nearly 15 times higher than its record low, reached on April 20.” But consider this: “euro-denominated corporate bonds have displayed impressive resilience…the yield spread over government bonds has actually narrowed to 1.05 percentage points from 1.12 points on April 20.” Some explanations for this might be that 1) the selloff reflects higher growth and inflation expectations, therefore corporates should benefit from a better economy, or 2) they’ll get theirs. Meanwhile, colleagues at JPMorgan would like you to know about VaR shocks: easy monetary policy has “taken much of the guess work out of interest rates in recent years, causing bond market volatility to collapse. In that environment, [Value at Risk] encourages traders to take on ever large positions. Markets are now heavily populated by VaR-sensitive investors: hedge funds, mutual fund managers, dealers and banks. When volatility ticks up, VaR also prods them to unwind those positions to avoid big losses, causing volatility to spike higher. These movements are further exaggerated by the decline in bond market liquidity…’This volatility induced position cutting becomes self-reinforcing until yields reach a level that induces the participants of VaR-insensitive investors, such as pension funds, insurance companies or households.’”
“Wal-Mart Stores is preparing to launch a subscription fast-shipping service similar to Amazon Prime to boost its online business and take on Amazon.com, according to people involved with or briefed about the product. Codenamed ‘Tahoe,’” which, I’ll stop you right there. “Tahoe” doesn’t get you anywhere in the illiterate technocracy of today. At the very least you could’ve spelled it “Taho.” Anyways, Walmart apparently thinks it will eat Amazon while it dances on the tongue of Jack Ma.
“‘We’d love it if you joined with us in an investment,’ the silver-haired Clark, 70, says in a promotional video for a company called the Grilled Cheese Truck.”