Why are Treasury yields rising?

10-year Treasury yield climbs… Chinese stocks rise, then crash… the war on automation isn’t over… watch Tesla’s ‘We the Robot’ event tomorrow

With the Fed now in rate-cutting mode, why are Treasury yields rising?

As you know, the Federal Reserve cut its target interest rate by 50 basis points on September 18th.

When the Fed lowers interest rates, it lowers the cost of borrowing. This generally leads to a decline in bond yields as investors anticipate lower yields on bonds issued at lower interest rates in the future.

So why, in the three weeks since the Fed cut rates, did the 10-year Treasury yield rise 10%?

Source: StockCharts.com

Legendary investor Louis Navellier addressed this in yesterday’s Accelerated profits Weekly show.

His answer boils down to three things: 1) huge demand for mortgages now that rates are falling, 2) positive economic data suggesting an improving US economy, 3) and the rise in crude oil based on fears of a wider war in the Middle East .

From Louis:

When there is positive economic growth coupled with rising inflation, this puts upward pressure on bond yields. And that’s what we’ve seen in the last week.

Now, while rising crude oil prices will have an impact on inflation going forward, I suspect that this week’s consumer and wholesale inflation reports will still be favorable.

September’s Consumer Price Index (CPI) will be announced on Thursday, while the Producer Price Index (PPI) will be released on Friday. Both are expected to show that inflation is under control right now.

We’d like to see this week’s inflation reports come in weak, as Louis just mentioned. The risk of a resurgence of inflation is already causing traders to recalibrate their bets on the number and size of Fed rate cuts this year.

It also results in some interesting comments from Fed officials. Last week, Richmond Federal Reserve President Thomas Barkin said, “I’m more worried about inflation than the labor market” and “I think a shutdown is a very real risk.”

excuse me

Less than a month ago, Federal Reserve Chairman Jerome Powell said the opposite at the FOMC press conference:

As inflation has declined and the labor market has cooled, upside risks to inflation have diminished and downside risks to employment have increased.

If inflation “stalls” as Barkin fears, resulting in a slower pace of rate cuts, that risks upsetting Wall Street, which is betting big on rate cuts to fuel this bull market for the rest of the year and in 2025. Many moves. pieces here. We will report after tomorrow’s CPI report.

Meanwhile, looking east, if you’re investing in China, get your Dramamine ready

As I described in DigestBeijing recently unleashed a tsunami of stimulus for its beleaguered economy, as well as billions in liquidity for the Chinese stock market.

This has sparked a generational rise in Chinese stocks. The Hong Kong index just topped its best three-week period since 1975…

Source: StockCharts.com

Before dropping nearly 10% yesterday…

Source: StockCharts.com

That collapse happened after Chinese officials failed to reassure investors of more stimulus.

Behold CNBC:

Chinese markets’ rally lost steam on Tuesday after a briefing from the country’s National Development and Reform Commission gave few details on additional stimulus.

While mainland China’s CSI 300 soared more than 10 percent at the open on Tuesday, returning from the Golden Week holiday, the index pared gains to post a 5.93 percent gain to end at 4,256.1.

Hong Kong’s Hang Seng index briefly fell more than 10 percent before recovering slightly to a loss of less than 9 percent in the last hour.

As I write on Wednesday, mainland China’s CSI 300 index is down 7%, while Hong Kong’s Hang Seng is down another 2%.

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Meanwhile, while the pigs’ strike is on hold (for now), the fight for automation isn’t going anywhere

As I described in Digest Last week, the International Longshoremen’s Association (ILA) reached a tentative agreement to suspend the strike until January to negotiate a new contract.

This avoids supply chain potholes, empty shelves at retailers during the Christmas shopping season and potentially upward pressure on inflation.

But while the tentative agreement addresses the ILA’s demand for higher wages, the broader issue — automation — remains a point of contention.

This is no surprise to regulars Digest readers. We’ve spilled a lot of ink in recent numbers describing why the trend toward “more automation” is inevitable and will lead to even more battles between labor and management in the coming quarters.

Yesterday, the Wall Street Journal highlighted this issue:

What the (United States Maritime Alliance) cannot afford, and the US economy cannot afford, is to ban the future use of automated cargo handling technology in East and Gulf Coast ports.

“Absolute, watertight language that there will be no automation or semi-automation” remains a key demand of the International Liquidators Association, which still needs to be negotiated before a new January 15 deadline.

Why is this such a crucial issue and why are port employers strongly opposed to the request?

The key reason is the need to create future port capacity. As the US builds new port facilities at a snail’s pace – the last new sea container terminal, in Charleston, SC, opened in 2021 and was the first since 2009 – the only way to expand capacity is through faster cargo handling through the existing ones. facilities.

The only way to do this is with automated cargo handling…

The lack of automation in the US – only three port facilities are fully automated, all on the West Coast – exposes ports as an Achilles’ heel of US trade competitiveness. High costs and inefficiency have long been the status quo.

We’ll continue to update you on this specific situation with ILA, but the bigger story here is how AI is fixing “high costs” and “inefficiency,” and that’s going to revolutionize…everything.

An example of this comes with Tesla’s “We, Robot” event tomorrow

Discussing the global economy’s shift towards automation and robotics, we’ve highlighted tomorrow’s big event from Tesla. The company is expected to unveil its first dedicated robotaxi, tentatively named “Cybercab.”

And why is this significant?

Well, back to “high cost” and “inefficiency”, you know what is incredibly high cost and inefficient?

Your car.

The average new car transaction price has increased nearly 25% since 2019 and is now $47,870.

For context, the median salary in the US is $59,384 (as of Q4 2023). So what do you get for almost a full year of average salary?

A piece of metal that, on average, goes unused 95% of the time. Talk about ineffective.

Meanwhile, according to a Bankrate survey earlier this year, only 44 percent of Americans say they can afford to pay a $1,000 emergency expense from their savings.

Those brutal savings are, in part, why tomorrow’s Tesla event is so big. Cybercab claims to offer a convenient, driverless ride at a fraction of the cost of traditional services.

If the cost savings and convenience live up to expectations, how many Americans would happily ditch their old car (and its huge expense and inefficiency)?

We bet a lot.

If so, that will revolutionize the automotive industry (and countless related supply chains) forever.

There are two related questions, one micro and one macro…

Micro – which companies are best positioned to benefit from a world where autonomous vehicles start to take over the roads?

Macro – what does an increasingly autonomous future (beyond self-driving cars) mean for our world and investment markets?

As for the first question, our tech expert Luke Lango provided his answer last Monday in a time-sensitive presentation. He revealed his handbook for what he believes are the most important stocks with multiple potential to buy today as AV/EV technology reshapes our world. You can catch one free play by clicking here.

As for the second question, this is it THE the dominant problem facing our world today.

It’s looking directly at the ILA dockworkers… at Detroit’s automakers… and all those who have seen the extraordinary capabilities of AI and wrestled with what that implies for job security for years to come.

Earlier this week, I compared global money flows in AI to a tilted pool table where all the pool balls flow into the same corner pocket. Why wouldn’t it be? It is the logical result of a technology that reduces costs and increases efficiency.

It is essential that we are invested in this corner pocket. After all, as I noted in Monday’s Digest:

In the era we’re entering, there will only be two kinds of people: AI owners, who benefit from the erratic flow of capital, and everyone else, who watches AI swallow previous economic productivity like light into a black hole.

AI/automation will not stop. Make sure you’re ready for what’s next.

We’ll keep you posted on all these stories here in the Digest.

Have a good evening,

Jeff Remsburg