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Bond yields


Shaken and Stirred 

Bond yields tumbled, helping stocks arrest some declines, as billionaire hedge fund boss Bill Ackman said he’d abandoned his bearish bet on US Treasuries. 

We covered our bond short,” Ackman tweeted, explaining that his decision was based on there being “too much risk in the world to remain short bonds at current long-term rates”.  

 Meanwhile retired bond king Bill Gross was also out on X (Twitter) with a warning about the US economy. 

"Regional bank carnage and recent rise in auto delinquencies to long-term historical highs indicate U.S. economy slowing significantly. Recession in 4th quarter...'Higher for longer' is yesterday’s mantra."  


Bond Bears Bitten 

That one-two punch combo to the bond bears saw Treasury yields collapse – the 10yr slumping from above a high above 5% to this really about economic risks? My view is simply that higher for longer is a paradigm shift, not one that can be ignored when the going gets tough – things are different now because the unlike in 2007/08 the Fed owns a stack of these bonds. Its powder is not dry, it won’t just fall back on the old playbook of cutting to stimulate...and war is inflationary – higher deficits mean structurally higher rates. Larry Fink of BlackRock commenting this morning to this effect – increase in US deficit is ‘highly inflationary’, rates will be higher for longer. I think this conflict is what pushes into a major correction and recession at some point…question is of timing. BofA reckons maybe one more hike this year. “We shift the last rate hike in our forecast out to December. We think the strong September data keep another hike in play. But it is a close call,” BofA economist Michael Gapen said in a note. “There are meaningful risks that the Fed will either delay the last hike into 2024 or not hike again.” 


Stocks Mixed 

The Nasdaq rose a quarter of a percent to hold 13,000 whilst the S&P 500 slipped a little and the Dow Jones declined almost 0.6%. This morning the FTSE 100 trades down a third of a percent whilst losses in Frankfurt and Paris are far more modest. The US dollar declined with Treasury yields yesterday triggering a correction but the euro is taking a big step back this morning with a softer-than-expected PMI read pushing EURUSD back to 1.0650 and the dollar catching a little bounce-back bid early doors with yields ticking up a tad…cable also pulling back slightly from its two-week high at 1.230 after UK unemployment held up OK at 4.2%, a little better than expected. Oil steadied this morning after notching a second day of losses, whilst gold holds steady around $1,975 still. Bitcoin soared, touching $35k this morning as yields fell, hitting its highest in a year and a half.   

We’ve talked about the Magnificent Seven propping up the equity market this year but it’s got kind of extreme. Apple, Microsoft, Meta, Amazon, Alphabet, Nvidia and Tesla, have driven all of the gains in global stocks this year. Alphabet and Microsoft report today. As ever watch the Google owner for read across to digital advertising spending for the likes of Meta and Amazon, as well as Pinterest. And watch MSFT for cloud spending growth for Amazon. Nvidia rose almost 4% after announcing plans to work with Arm on chips for PCs – Intel fell 3% on the jilting.  



Profits down 16% on slowing growth in the UK retail business and drop in investment banking revenues. Tailwind of rising rates is starting to reverse with a clear indication that net interest margins are peaking. Group revenues +5% were in line, whilst net profit beat expectations at £1.3bn thanks to a lower impairment charge. Income from the Corporate and Investment Bank fell 6% to £3.1bn, reflecting lower client activity in both Global Markets - against record FICC performance a year ago admittedly - and Investment Banking fees. Management also warning on charges due to cost cuts and has trimmed net interest income outlook, with net interest margins seen in a range of 3.05% to 3.10% in 2023 – in July it had warned of a decline to 3.15% from 3.2%, so investors are looking at increasing pressure on core profitability. Shares down 6%, with UK banking stocks caught in the crossfire ahead of their earnings updates this week – chiefly it seems on the downgrade to net interest margins. In Europe, UniCredit hiked FY outlook with Q3 net profits up by more than a third.  


CAB Payments 

Liberum says management reputation in “tatters” after warning on Q3 – they only listed in July! FY23 guidance cut to 20% growth from 45% guidance at IPO. Management attribute weakness to weaker volumes and margins in West African and Central Africa Francs without saying why. Liberum: “While we think the underlying business has a strong proposition with a large market, management's inability to foresee events and guide is a major concern.” Shares slumped 56% this morning. I don’t normally comment on smaller market cap stocks but this is one of those IPO-gone-wrong stories that is worth noting – is this really all that London can offer? JPMorgan Asset Management built a short position in the stock just a couple of months after its bank had helped it float… 

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