Last Week It was a tough week. The biggest event was the reaction to the unforced error by U.K. Prime Minister Liz Truss’ ridiculous tax cut, deficit spending plan to heal the U.K.’s crumbling currenc...
Last Week was a tug of war between bonds and stocks. On Wednesday, the BLS released July CPI and was surprised by the downside. However, when looking under the hood we saw huge increases in both shelter and food. The big drop came from energy prices and apparel. All in all, the headline number declined from last month’s white-hot 9.1% to 8.5%. The bond market was rather skeptical as 8.5% is still way too high and the memory of the previous week’s employment report triggered a selloff, primarily in the front end of the curve.
It should be noted, however, that the chance of a 75-basis point hike in the funds' rate in September declined a bit to even odds. On the other hand, stocks and other risk assets rallied hard, embracing the CPI report’s potential to make the Fed less aggressive. The momentum has swung dramatically as FOMO strikes again. Head-fake? Perhaps, but I would not want to be in the way of it.
- The S&P 500 rose 3.2% for the week. The average daily move was 0.9%.
- The NASDAQ rose 3.1% for the week. The average daily move for the week was 1.38%.
- The 2-year Treasury yield rose 1 basis point closing at 3.24% on Friday. High year-over-year 3.43%, low yield .20%.
- The 10-year Treasury yield was flat for the week, closing at 2.83% on Friday. Year-over-year high yield 3.47%, low yield 1.24%.
- The VIX Index fell 8% for the week, closing at 19.53 Friday. Year-over-year high 36.45 and low 15.01.
- The MOVE Index dropped 13% for the week, closing at 106.28 on Friday. Year-over-year high 156.16 and low 51.73
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened by 7 basis points for the week closing at 74 basis points Friday. High spread Year-over-year high 102 and low of 46.06.
- High Yield corporate debt (as measured by Markit CDX) tightened by 43 basis points, closing at 421 basis points on Friday. Year-over-year high 588, and low 273.
- US Dollar Index declined 0.9% for the week closing at 105.63 on Friday. Year-over-year high 108.54 and low 92.03.
- WTI Crude rose 3% for the week using the September WTI Futures contract, closing at 92.09 Friday. Year-over-year 123.70, and low 62.32.
- Gold, as measured by the December 2022 futures contract, rose 1.4% for the week closing at 1,798 on Friday. The high price for the front contract year-over-year is 2,043 and the low is 1,700
- Bitcoin rose 5%, closing at 22,240 Friday. High price year-over-year 67,734 and low 17,785.
The Week Ahead
We come in this morning with stocks down a fair amount and the Treasury yields lower from Friday’s close. China came out with dismal economic numbers last night on top of heavy reporting of the housing crisis that threatens to make our Savings and Loan crisis of the 1980s look downright pedestrian. Expect a massive bailout of homeowners (or home buyers whose money was taken but homes not given) which will put a nice dent in China’s massive reserve pile.
This sets up a bad technical for US Treasuries as China will most likely be a seller for a while to pay for the bailout. When you add that to the Federal Reserve’s quantitative tightening along with continued sharp fiscal spending the picture is not pretty, at all. It will be a heavy data week with the Fed’s July FOMC meeting minutes taking center stage.
An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
- The Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index represents the portion of the Bloomberg Barclays Global Aggregate Index that measures the aggregate value of global debt with a negative yield.
- The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization.
- The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
- The Cboe Volatility Index® (VIX) is a calculation designed to produce a measure of constant, 30-day expected volatility of the US stock market, derived from real-time, mid-quote prices of weekly S&P 500® Index (SPX) call and put options with a range of 23 to 37 days to expiration.
- The ICE BofA MOVE Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of implied volatilities on the CT2 (Current 2 Year Government Note), CT5 (Current 5 Year Government Note), CT10 (Current 10 Year Government Note), and CT30 (Current 30 Year Government Note), with weights 0.2/0.2/0.4/0.2 respectively.
- The Markit CDX North America Investment Grade Index is composed of 125 equally weighted credit default swaps on investment grade entities, distributed among 6 sub-indices: High Volatility, Consumer, Energy, Financial, Industrial, and Technology, Media & Tele-communications. Markit CDX indices roll every 6 months in March & September.
- The Markit CDX North America High Yield Index is composed of 100 non-investment grade entities, distributed among 2 sub-indices: B, BB. All entities are domiciled in North America. Markit CDX indices roll every 6 months in March & September.
- The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. Intercontinental Exchange (ICE) US computes this by using the rates supplied by some 500 banks.
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