Spooked by the Fed’s shock-and-awe surprise 50-basis-point rate cut, the already frazzled markets did a job today. Gold surged nearly 3%. The three major stock indices all swooned nearly 3%. And Treasury yields plunged across the board.
The 10-year Treasury yield plunged from 1.13% pre-announcement to an intraday low of 0.935%, and closed officially at 1.02%. When the yield drops, it means that bond prices rise. In late trading the yield fell below 1% again, and is currently at 0.997% reflected in the chart (data via Investing.com):
The one-month yield – in a sign that this was a surprise act – plunged 34 basis points, most of it instantly, from 1.45% just before the shock-and-awe rate-cut announcement to 1.11% at the close, which put it in the middle of the Fed’s new federal-funds target range between 1.0% and 1.25%.
The three-month Treasury yield plunged from 1.20% just before the announcement to 0.95%, already pricing in another rate cut well before its maturity in 90 days.
The two-year yield plunged to 0.72%, the lowest point on today’s yield curve. The 30-year yield ticked down 2 basis points to 1.64%, a record low.
The chart below shows the increasingly ugly yield curve yesterday at the close (black line) and today at the close (red line), for each maturity, from the one-month yield on the left, to the 30-year yield on the right:
At this point, nearly the entire yield curve is below our most doctored and repressed US inflation gauge, the Fed’s preferred “core PCE,” which languishes at 1.6%. And the entire yield curve is far below the Cleveland Fed’s median CPI, which has surged to 2.9%.
The Median CPI is based on the data from the Consumer Price Index (CPI) but removes the extremes of price increases and price decreases, that are often temporary, to reveal underlying inflation trends:
Generally speaking, plunging Treasury yields, while inflation is rising, are not a sign of confidence, other than confidence in yields falling even further due to fears of more mayhem coming at the markets which would make the Fed react even more vigorously by cutting rates even further.
Investors who bought Treasuries before the rate cut and sold afterwards made a very quick buck, especially if it was a leveraged bet.
But lower yields are bad news for fixed-income investors of all kinds that have to replace maturing securities with new low-yielding securities. These fixed-income products amount to over $40 trillion in the US, including Treasury securities, bank savings products, investment-grade corporate bonds, municipal bonds, asset-backed securities, and the like.
Much of this stuff now yields below the rate of inflation as measured by median CPI, meaning that interest income doesn’t even compensate investors for the loss of purchasing power of their principal due to inflation. New buyers of these securities get their cash flows from interest payments confiscated by the Fed’s monetary policy.
So they can invest in the still immensely overpriced stock market, and count on meager and fragile dividend yields, or they can stand on the edge of a cliff and look down and see if they have enough of a death wish to buy Ford shares for their 8% dividend yield. Dividends can get cut any time, no sweat. And those fixed-income investors chasing yield among dividends have a good chance of losing a lot of principal a lot more quickly than the damage inflation might do.
By the stock market’s reaction today to the Fed’s shock-and-awe surprise 50-basis point rate cut – it should have caused stocks to soar, but caused them to plunge nearly 3% instead – it would seem that another such shock-and-awe event signals even more panic inside the Fed, and who knows how the stock market might react when it sees the Fed panicking.
There is historic precedent: Most recently, the Fed started cutting its policy rates in late 2007 and was slashing them wholesale in big panic-cuts in 2008, seeing whatever it saw. Then Lehman blew up, and by then, all heck had broken lose in the stock market.
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
