Big Tech & Their Bondage Ties

Tech corrections clearly were good for your health... 🎵

Is it a bird, is it a plane...? Nah just the Nasdaq mate 🚀

So, are we rotating into value or is that over now?

"Rather like a brontosaurus that has been bitten on the tail and most of the body hasn't noticed it yet, the signal is working its way up the vertebrae,"

Borrowing charts from that note, the market is still ro-tat-ing...

And today sees a couple of key events in the current dynamic...

U.S. CPI - 13:30 GMT

This week headline inflation is likely to move a little higher primarily due to rising gasoline prices with the annual rate of headline inflation set to head to 1.6% from 1.4% while core (ex-food and energy) stays at 1.4%.

Annual rates will start to rise quickly though in March-July as price pressures in a depressed, locked down economy 12 months ago are compared with price levels in a vibrant re-opening economy in 2021.

We expect to see headline inflation move above 3.5% in 2Q which could lead to a change in language from the Fed at the June FOMC meeting surrounding the prospects for a tapering of asset purchases.

We also think inflation could be stickier due to improved corporate pricing power in a supply-constrained economy. - ING

I don't agree with their view about the Fed June meeting - it's like no-one actually pays any f**king attention to what they've been saying!😠

e.g. Jerome Powell LAST WEEK...

“Even if the economy sees transitory increases in inflation … I expect that we will be patient.”

“But I do think it’s more likely that what happens in the next year or so is going to amount to prices moving up but not staying up and certainly not staying up to the point where they would move inflation expectations materially above 2%.”

Rant over, back to the point I actually wanted to make.

Everyone thinks that everyone is worried about inflation so that's the game we're all playing (for now)

Big beats in CPI prints will stoke these fears further and most likely lead to a rotation continuation...

U.S. 10 Year Note Auction - 18:00 GMT

The 3 year auction passed without incident yesterday...

 Slightly lackluster indirects, could be a sign of foreign demand still tentative ahead of duration auctions, although hard to read too much into that given the different pools of investors for those maturities pic.twitter.com/ntyVGXghmr— trap_zack (@ZackEiseman) March 9, 2021 

Strong demand should keep yields anchored.

Weak demand could see bonds sell off, propelling yields higher and tech lower...

Real yields matter

I've taken the data from the Treasury to show how real yields have evolved this year...

2021 10Y Real Yields - no idea why the dates are on top

The red line corresponds with the 16th of February when real 10Y yields rose decisively above -1%.

That would be the same day the Nasdaq topped out just shy of 14k.

It's no coincidence that a solid bid in bonds (and lower real yield) yesterday saw tech up big...

Check out the correlations...

                                      Big Tech 🤝 Sovereign Bonds