US real rates drive everything in markets right now, and if they are going up then so is the USD, while equity will head lower – for context, the 1-month rolling correlation (assessed by value, not percentage) between US 10-yr real rates and the USDX sits at +0.94 – so there is an incredibly strong relationship.
This is also true of equities, where the US real rate (we deflate the 10yr Treasury for expected inflation) holds a rolling 1-month correlation with the US500 of -0.92 and NAS100 -0.89.
It sounds pedantic that one day makes a difference, but the default setting for 5 and 10yr US TIPS/real rates on TradingView, which the source a feed directly from the St Louis Fed (FRED) website – comes under the code DFII10 – as per the FRED website this, however, has a two-day lag, so the benefit to traders is reduced.
We can see the breakeven component of real rates on TradingView (10-year breakeven, or the expected US inflation rate to average over the coming 10yrs – code = T10YIE) actually holds no lag, so we can now use this to create a more up-to-date US 5 & 10-year ‘real’ Treasury rate.
So there work around - In the search function simply subtract T10YIE from the US 10yr Treasury (US10Y) and you can get a real-time real rate – type TVC:US10Y-FRED:T10YIE – this is the 10yr real rate, but you can change it to TVC:US05Y-FRED:T5YIE for the 5-year.
Higher real rates act as the true cost of capital – they are the handbrake on economic activity that the Fed need to be more cognisant of than anything. If 10yr real rates are going to 1%, and if this relationship holds, then I think the DXY re-tests the 15 June highs, although we are seeing real support for EURUSD, and the US500 likely heads to 3400 – 3200.
It's here where most see a trough in the market and where we bake in a true recession – not just a technical one, but one where we see broad-based layoffs. As it is, a recession is certainly probable, but will the economy talk itself into something far more pronounced that really impacts consumption?
I always considered my job “recession proof” and never worried about it while deciding where to work because I’m the only one that works due to an autistic son. But now that business is slowing down much much more than expected I’m nervous, to say the least.
BrianVS
⋅
@mkrob0918 i felt the same, but noticed A slowdown, so I did my work a favor and failed a drug test so they wouldn’t have to let me go lol.
Blakberi
⋅
Damn :( Sorry to hear that. I am actually in the process of seeing a psychologist and psychiatrist about autism spectrum disorder and adhd. I suspect I have both. Some pretty cool people have it including Michael Burry from The Big Short. He has Asperger's IRL.
Blakberi
⋅
@Blakberi To clarify, I'm sorry to hear you are struggling with employment. I wasn't talking about your kid even though I went off on a tangent about ASD 😅
GrizzlyBearBee
⋅
US10Y crossed below 3% on recession fears.... Real rates may be headed lower.. However US Dollar may remain supported as a safe haven as CHF & JPY seem volatile because of the SNB raising 50 bps rate hike and BoJ sticking to easy policy as inflation heads higher... Tomorrow, Tokyo CPI release will be important to determine whether the JPY safe haven status will resume.
Blakberi
⋅
thanks! this is awesome 👌
ChartScope
⋅
Steine
scheplick
⋅
Thanks for sharing - this is a helpful reminder on to follow an important metric