Paper Gold Shenanigans, Fed Rebrands “Ample Reserves”

Consumer Economy

ISM Manufacturing Index; 48.7 (50=neutral), prior 49.1
ISM Services Index; 52.4 (50=neutral), prior 50.0
UMich Consumer Sentiment (UMCSENT); 50.3, prior 55.1
Factory Orders (DGORDER); DELAYED
Nonfarm Payrolls (PAYEMS); DELAYED

Manufacturing is slowly moving lower, while services are slightly increasing.

Consumer sentiment is pretty catastrophic – this week’s level was just slightly above the worst level ever (50.0) set in June 2022.  FRED updates UMCSENT with a delay, so I put the value in the chart by hand.  Consumer sentiment isn’t destiny (we allegedly didn’t have a recession at the all-time low in 2022), especially because the top 10% spend half of the money, but it does not suggest things are “BOOMING”.

Credit & Rates

Fed Balance Sheet (WALCL); 6.57T -14.3B (-0.22% w/w)
Total Bank Credit (TOTBKCR) 18.79T -34.4B (-0.18% w/w)
30 Year Mortgage Rate (MORTGAGE30US) 6.22% +5 bp
3-Month Treasury (DGS3MO) 3.89% -3 bp
10-Year Treasury (DGS10) 4.08% -3 bp
20+ Bond ETF (TLT) 89.57 -0.72 -0.80%

Bank credit fell strongly this week; annualized, that’s a 9% decline. So far, that’s just one week; if it continues, that’s a deflationary disaster.  QT is coming to an end.  On that note:

Fed’s Williams: Fed may soon need to expand balance sheet for liquidity needs [Nov 7]

He cautioned that buying bonds to maintain the right amount of liquidity is not stimulus.  “Reserve management purchases will represent the natural next stage of the implementation of the (Federal Open Market Committee’s) ample reserves strategy and in no way represent a change in the underlying stance of monetary policy,” Williams said.

(source – pfizer/reuters)

Rates moved slightly lower. The rate map (specifically, the 3-month treasury yield – red line) does not (yet) support a Fed rate cut (black line) at the next meeting.