Weekly Signal & Noise Filter
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The above is not a reference to the belated publication of this note due to business travel across the pond.
The reference is to the resumption of bull market narrative, supported by:
A significant pull back in 10-year bond yields.
Upgraded earnings estimates and new all-time highs in risk assets.
The above is conditioned on an inflation trajectory that will not necessitate increases in the Fed Funds policy rate.
Last week’s inflation data from the PPI and CPI reports is now old news and has been digested by markets. In short, the combined signal from both reports is that while it is still above target, inflation continues to trend down, albeit at a slower pace than preferred by policy makers.
More importantly, any idea of a rate hike, regardless of how fringe that idea seemed to these pages, is off the table.
Pinebrook’s expectation of a pullback in 10-year nominal yields was realized, with nominals hitting an intraday low of 4.34% on Wednesday May 15, 2024, and final close of 4.36%.
This was just a few basis points shy of the 4.3% target established on May 6, 2023 (after having taken a long at a 4.68% reference yield on April 26, 2024).