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...
“Our responsibility to deliver price stability is unconditional. We will keep at it until the job is done.” And with that this past Friday, Fed Chairman Powell destroyed the misguided notion that the Fed would shrink from its monetary tightening at the first sign of recession and pivot in 2023. The message is now loud and clear, the Fed will raise rates and keep them there until they see concrete data that inflation has been whupped.
Equity markets were destroyed, led by big-tech, corporate spreads widened on limited trading, Treasury yields, led by the 2-year, surged. By day’s end, the 2-year note yield threatened the year-over-year high, setting at 3.40%, just 3 basis points shy.
The yield curve ratcheted flatter with 2s-10s inverting 8 basis points for the week as the longer end of the curve took some comfort that the Fed will do what it takes to shove the inflation genie back into the bottle. Looking at Fed Fund futures and OIS swaps, the probability of a 75-basis point hike at the September 21st FOMC meeting is approximately 72%.
- The S&P 500 declined 4.1% for the week. The average daily move was 0.57%.
- The NASDQ fell 4.4% for the week. The average daily move for the week was .86%.
- The 2-year Treasury yield rose 17 basis point closing at 3.40% on Friday. High year-over-year 3.43%, low yield .20%.
- The 10-year Treasury yield rose 6 basis points for the week, closing at 3.04% on Friday. Year-over-year high yield 3.47%, low yield 1.24%.
- The VIX Index rose 24% for the week, closing at 25.56 Friday. Year-over-year high 36.45 and low 15.01.
- The MOVE Index declined 1% for the week, closing at 122.95 on Friday. Year-over-year high 156.16 and low 51.73.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads widened 5 basis point for the week closing at 86 basis points Friday. High spread Year-over-year high 102 and low of 46.
- High Yield corporate debt (as measured by Markit CDX) widened 28 basis points, closing at 499 basis points on Friday. Year-over-year high 588, and low 273
- US Dollar Index rose 0.6% for the week closing at 108.80 on Friday. Year-over-year high 108.54 and low 92.03.
- WTI Crude increased 2.5% for the week using the September WTI Futures contract, closing at 90.77 Friday. Year-over-year 123.70, and low 65.57.
- Gold, as measured by the December 2022 futures contract, declined 0.7% for the week closing at 1,750 on Friday. High price for the front contract year-over-year 2,043 and low 1,700.
- Bitcoin dropped 3%, closing at 20,650 Friday. High price year-over-year 67,734 and low 17,785.
The Week Ahead
We come in this morning picking up where we left off on Friday with stocks down sharply and bond yields up a fair amount. Asian equity markets were hit pretty hard overnight and as we open up here, Europe is also taking a good beating.
I received last week’s price action backwards predicting we’d have a big selloff in Jackson Hole Thursday and then a big rally Friday as Chairman Powell would fumble the message again, but he didn’t. It is a big data week with Non-Farm Payrolls on Friday as the star of the show.
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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