Bottom line message here is- If the data follows a similar path today and tomorrow to what we saw at the same time in 2000 and 2007 we should expect lower yields and higher equities into the weekend.
Yesterday CPI delivered exactly as predicted and exactly in line with what happened in our two analogs from 2000 and 2007.
Yields from 2's all the way to 10's did very little as was to be expected (classic buy the rumour sell the fact)
The reality is that the numbers were both very soft 0.2's (.155% headline and .165% Core).
On the back of the historic picture that should "set the store" for lower yields and higher equity markets into month end.
Core PCE at the end of the month may well be a "nothing burger" given that market commentators have more data to help them predict it (GS is looking for 0.14%). Core PCE printed 0.1 on this print in 2007 and it looks like 0.2 in 2000 although that is a final print as we do not see initial reading)
As in 2000 and 2007 it is now all about 06 Sept and the Employment data.
Yesterday's numbers look to have pretty much "baked in" a 25 bp move at the Sept 18th meeting.
There was no Sept meeting in 2000- It was on 22 August, and they did not adjust the Fed Funds rate. They also did not adjust on October 3rd, or the rest of the year for that matter which pretty much explains the 18% drop in the S&P starting 01 Sept 2000 to 21 Dec 2000). The Fed then capitulated and cut 50bps on 03 Jan 2001
Today's data is not irrelevant but likely not a game changer either. As I keep saying we are not going to print the same numbers as we did in 2000 and 2007 every time....and it is the employment data that is key to these analogs.
Notwithstanding that it is still worth watching the path of those subsequent numbers in 2000 and 2007 and comparing them to what we get this time.
So, let's look at the next 48 hours.
Retail sales excluding auto (like for like comparison)
2007- expected +.4%- came in as expected
2000- expected +.4%- came in at .6%
2024- expected 0.1%
So, analog would suggest a possibility of flat to a topside beat
Initial jobless claims
2007- expected 315k and came in at 322k
2000- expected 290k and came in at 313k
2024- expected 235k
So, analog would suggest a topside miss
NAHB housing index
2007- expected 23 and came in at 22
2000- no expectations- came in at 60
2024- expected 43 (almost half way between the 2 in 2 totally different environments. 2007 was a housing crisis and 2000 was far from that. This time around is also not a housing crisis)
No real bias here
Housing starts
2007- expected 1,400k and came in at 1,381k
2000- expected 1,560k and came in at 1,373k
2024- expected 1.333k
Analog would suggest a miss here
Building permits
2007-expected 1,400 and came in at 1,373k
2000- no expectations and came in at 1,542k (30 k below the prior month and low of the year)
2024- expected 1,425k- 21k below prior month.
Analog would suggest on target or a miss here
What happened in yields and equities on the Thursday/Friday of that week in 2007 and 2000
2007
US 10-year yield dropped 16 bp's on the Thursday and closed down 6 bp.s. It closed up 2 bp's on the Friday
US 2-year yield dropped 32 bp's on the Thursday and closed down 8 bp's. On Friday it closed down another 8 bp's
The S&P initially fell sharply on the Thursday but closed up about 0.5% on the day. On the Friday it closed up 2.5%
Honestly hard to see moves of this magnitude but the suggested direct if we see numbers like 2007 would be lower yields and higher equities over next 48 hours
2000
US 10-year yield dropped 3 bp's on the and another 4 bp's on the Friday
US 2-year yield was unchanged on the Thursday and closed down 4 bp's on the Friday.
The S&P closed up about 1% on the Thursday but closed down about 0.3% on the Friday.
These numbers look more in the "reasonable" realm of expectations.
Bottom line is that If the data follows a similar path today and tomorrow to what we saw at the same time in 2000 and 2007 we should expect lower yields and higher equities into the weekend.
Tom Fitzpatrick
Tom Fitzpatrick, now the Managing Director of Global Market Insights at R.J. O'Brien, offers an impressive background. Originating from Ireland, his journey began at Chase Bank of Ireland, evolving through pivotal roles in foreign exchange (FX) at HSBC and Nedbank. His expertise expanded at Citibank in various global positions, culminating as Managing Director and Global Head of the CitiFXTechnicals product, delivering award-winning analysis across multiple asset classes.
View all posts