RTM: Stocks Move Sharply Lower On August 15

Daily Update - Video At Bottom

Stocks are trading lower today, despite a better-than-expected retail sales report. Weakness overseas continues, with disappointing economic data from China, causing the PBOC to cut the MLF rate in a surprise move by 15 bps to 2.5%. That probably won't be enough to get the economy going over there and is likely just the beginning. Meanwhile, the U.K. reported hotter-than-expected wage growth, while Japan's GDP grew by 6% in the second quarter, well above estimates of 2.9%

Most of this data supports the idea of living in a higher-rate world, while the weaker China data underscores the idea that the dollar will continue to strengthen in places where central banks are slow to move rates up or, in China's case, cuts rates. 

Japan's economic data probably isn't enough for the BOJ to change policy at the next meeting, but the fact is that the 10-year JGB is likely to continue to inch higher in the coming weeks. That probably means that the yen continues to weaken versus the dollar while the anchor of global rates continues to push the ceiling higher. 

Additionally, the hot data in the U.K. will provide a further upward bias to rates in general. The U.K. will release its inflation data tomorrow. 

Rates in the U.S. did fall after the retail sales report, and I think this mostly has to do with positioning than any signal. We see this lately where rates rise into a big report and then come down immediately, only to continue higher in the following days. Such was the case for the Job report and CPI earlier this month. Generally speaking, rates on the back of the curve could still move higher, and real yields move higher too. This means a TLT and TIP that generally trade lower. 

I expect that the 4.2% region on the 10-year is a sticking point, given it marks the prior higher, and pushing above that could lead to a relatively rapid move to the next level at 4.7%. The 10-year rate looks like one big bull flag on the weekly chart.