Data & News Vacuum Continues

WHERE WE STAND – I’m starting to wonder whether there might end up being a global shortage of barrels soon, given that sell-side strategists everywhere keep having to scrape the bottom of them to find noteworthy catalysts for our notes.

Obviously, quite a big part of that stems from the ongoing US government shutdown, which not only shows scant sign of being resolved any time soon, but which is also resulting in market participants having to endure a sort of purgatory, stuck in a data vacuum amid a dearth of official economic releases.

For once, though, I shan’t complain about that! In many ways, a pause in the frenetic drumbeat of data releases is actually somewhat welcome, at least from the perspective of it meaning that there is essentially no reason right now to derail markets from continuing to just ride along the ‘path of least resistance’. To be clear, that pause won’t last forever, as the postponed data will be released once the government re-opens, and vol will likely return in due course.

Still, while that pause is akin to hell for those seeking to provide a ‘hot take’ on each and every bit of data we get, it’s heaven for those who prefer to take a longer-run view of things, as I am inclined to do.

Those in the former camp, though, seem to be trying to plug this data void by almost any means possible, this time resorting to talk of a ‘bubble’ to fill the requisite column inches. Chiefly, this pertains to the rally that equities, primarily those stocks linked to the AI theme, have enjoyed this year, though I would firmly reject that label. Just because something has rallied a lot, that doesn’t automatically mean that the asset in question has become detached from its intrinsic value, nor does it mean that the asset in question is caught up in a speculative frenzy. Honestly, the only thing there’s a bubble in at the moment is folk using that damn word!

In fact, I’d argue that equities are far from such a frenzy right now, not least considering that the fundamental bull case of a resilient underlying economy, solid earnings growth, and a looser monetary policy backdrop continues to underpin the market. That famous old adage, ‘don’t fight the Fed’ continues to apply as much as ever, and may as well be broadened out now to ‘don’t fight the President’ (given the Trump Admin’s stakes in numerous firms), and ‘don’t fight the capex’ (given the apparent non-stop wave of AI-related spending). I’d wager that those three ‘golden rules’ will serve participants well into year-end, and in any case remain bullish on equities over that timescale, with 7k in the SPX still on the cards before 2025 is out, even if benchmarks did take a bit of a lurch lower yesterday.

While ‘long equities’ seems to be one leg of the shutdown trade, the other right now seems to be ‘long gold’, with bullion continuing to print record highs essentially on a daily basis, and with yesterday being no exception to that rule. Once more, the bull case remains a solid one amid runaway fiscal spending, the risk of inflation expectations un-anchoring, and amid continued physical demand from reserve allocators seeking to diversify. With spot having convincingly broken above $4,000/oz overnight, to fresh record highs, another round of momentum-fuelled bulls could now be convinced to enter the fray.

Speaking of which, it seems there’s every chance that the buck may now finally start to kick higher, not only as risks to the outlook tilt to the upside amid the Fed’s ‘run it hot’ approach, and with little by way of data to derail the rally for the time being, but also after the DXY closed north of the 50- and 100-day moving averages yesterday. 99.20 stands as the upside target now, being the top of the range that we’ve been stuck in, trading in rather turgid fashion, since the end of June.

Switching gears, I wanted to briefly touch on yesterday’s 5-year Bobl auction – admittedly, not the most exciting subject. However, the auction received a bid-to-cover of just 1.1, the lowest since 2021, with the ‘real’ bid-to-cover, once retained securities are accounted for, being a meagre 0.8. That, technically, makes it the second uncovered German auction in a week, a pretty clear sign that the market is struggling to digest the deluge of European supply right now.

Not really great timing, then, for the ongoing budgetary shambles in France, nor for Rachel Reeves to deliver her own Budget in late-November; clearly, a theme well worth keeping on the radar here.

LOOK AHEAD – Another light-ish docket ahead today, as the ongoing data void stemming from the US government shutdown rolls on.

Minutes from the September FOMC meeting, though, are due for release tonight. At that meeting, of course, the FOMC delivered a 25bp cut, with Governor Miran dissenting in favour of a larger 50bp move, while the updated ‘dot plot’ signalled a further two such 25bp cuts being delivered before year-end. Frankly, it seems difficult to imagine that the minutes add much by way of fresh information to the debate, while the same can be said of scheduled remarks from FOMC members Barr, Kashkari, and Musalem through the day.

Besides that lot, there’s just the small matter of a 10-year Treasury sale to deal with. That sale, though, should be taken down relatively well, with six of the last seven auctions stopping-through.