Rising US yields

US 10 year government bond generic yield

10y bond yield 2018-10-04

Source: Bloomberg

Steeper yield curve in the US

US 3 months vs. 10 years yield curve

us curve 2018-10-04

Source: Bloomberg

Better economic numbers

ISM Non-Manufacturing Sept 2018

ISM 2018-10-04

Source: Institute for Supply Management, Bloomberg

All this unsettles the equity markets. Too much good. It is easy to argue that the good time will not last and the correction in equity markets will finally happen. All so true.

The time is the hard issue. Timing has always been a challenge especially in bull markets. The time tested indicators may be flashing some yellow warning signs. However, as so often they may be early not by weeks buy quarters. Just entering some of the best period in the market history.

Fourth quarter of a calendar year till the end of the second quarter are generally strong.

This period particularly into the pre-election year shows even stronger performance.

season 2018-10-04

Source: Oppenheimer & Co., Bloomberg

Well behaved Federal Reserve with clearly communicated policy.

Global central banks showing tolerance for higher inflation.

Trade disputes making it all look sour is arguably a long shot.

Markets are afraid of the news to their own peril. Fundamentals last longer than news.


There were numerous views on Friday’s unemployment and jobs numbers. Mostly it was expected that jobs data do not move markets in the current environment unless they will be very bad.

Well it appears that most get this part pretty wrong as the bond market and the USD move strongly following the Jobs report. The 2 year yield reached a new decade high (see following chart) and the 10 year tries to finally bust the consolidation zone (see chart)

Generic 2 year yield of US government bonds (weekly)

USGG2 2018-09-10

Source: Bloomberg

Generic 10 year yield of US government bonds (weekly)

USGG10 2018-09-10

Source: Bloomberg

Change in nonfarm payrolls was expected at 190k and was reported at 201k. Underemployment rate fell to 7.4% from 7.5% and hourly earnings increased to 2.9% from 2.7% higher than expectations. Highest level since 2009.

US average hourly earnings all employees

US hourly wages 2018-09-10

Source: Bureau of Labour Statistics, Bloomberg

The following chart shows that US worker makes more money which he or she can spend on goods adding to the already well running economy. Still the corporate fundamentals may not deteriorate as much as some may worry. Just on Thursday it was reported that unit labour costs actually fell by 1%.

US Unit Labour Costs Nonfarm Business Sector QoQ in %

US Unit 2018-09-10

Source: Bureau of Labour Statistics, Bloomberg

Isn’t it a great world? Companies are paying more to their worker as hourly earnings are rising and at the same time the costs of labour are actually falling which should contribute to improving margins and little if at all costs pressures.

Some Federal Reserve member call this economy “Goldilocks”. From the past we all know this is dangerous moment to use such a phrase but looking at the numbers just presented, it is rather a fair statement.