Last Week Last week, risk markets reverted to a slightly less hawkish Fed view for 2023. On Wednesday, the minutes for the November 2 FOMC came out and one theme was slowing down the pace of rate hike...
It was a terrible, horrible, no-good week as nearly every asset class (save the USD against any other currency) took its turn to get pummeled. The combination of inflation and growth concerns thrashed stocks and just about all fixed income products spread off U.S. Treasuries. While I guess you can say Treasuries were a winner, the price action stunk of poor liquidity and panicked flight to quality. The yield curve flattened as we believe short positions were closed out, a classic bear-market rally.
On Wednesday, we got April CPI and the numbers were worse than expected. When investors talk about “peak inflation” now they issue a caveat that the peak will stay “peaked” for quite a while.
Meanwhile, in the world of crypto, Bitcoin plumbed new yearly lows, and stablecoins like Terra were wiped out as they lost their peg to the dollar.
High yield corporates continued to get punished as high yield spreads as measured by CDX pushed to their highest levels since the summer of 2020. Similarly, high yield syndicated loan prices, as measured by the S&P/LSTA Leverage Loan Index, fell to their lowest level since March 2020.
During the week, various Federal Reserve Bank presidents essentially articulated what former New York Fed President Bill Dudley has been saying, the financial markets need to get dinged to puncture the wealth effect that keeps people spending. As of now, no “Fed-Put." That is all.
- S&P 500, fell 2.4% for the week. The average daily move was 1.52%.
- The NASDAQ dropped 2.80% for the week. The average daily move for the week was 3.65%.
- The 2-year Treasury yield plunged 15 basis points for the week. High year-over-year 2.78%, low yield .10%.
- The 10-year Treasury yield dropped 21 basis points for the week, closing at 2.92%. Year-over-year high yield 3.13%, low yield .91%.
- The VIX Index fell 4% for the week, closing at 28.87 Friday. Year-over-year high 36.45 and low 15.07.
- The MOVE Index decreased 5.3% for the week, closing at 114.61 on Friday. Year-over-year high 140.03 and low 42.53.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 2 basis points for the week closing at 85 basis points Friday. On Monday spreads closed at 89 basis points, a new year-over-year high. High spread year-over-year high 89 and low of 46.56.
- High Yield corporate debt (as measured by Markit CDX) widened by 5 basis points, closing at 484 basis points on Friday. On Monday spreads closed at 497 basis points, a new year-over-year high. Year-over-year high 497, and low 269.
- US Dollar Index rose 0.9% for the week closing at 104.56 on Friday. On Thursday, the index closed at a new year-over-year high of 104.85. Year-over-year high 104.85 and low 89.44.
- WTI Crude increased .7% for the week using the June WTI Futures contract, closing at 110.49 Friday. Year-over-year 123.70, and low 47.62.
- Gold, as measured by the June 2022 futures contract declined 3.9% for the week closing at 1,808 on Friday. High price for the front contract year-over-year 2,043 and low 1,678.
- Bitcoin plunged 17.5%, closing at 29,760 Friday. High price year-over-year 67,734 and low 28,402.
The Week Ahead
We come in this morning with Treasury a bit lower and equity future a tad weaker. China reported large contractions in retail sales and industrial production as the country’s “Covid-Zero” policy works to create the “Economy Zero Policy.”
Over the weekend, most Wall Street analysts spoke of continued pain and increased probability of a hard landing for the US economy. Additionally, the usual mantra of “high prices cure high prices” to finish off inflation (high prices eventually staunch demand which in turn contracts the economy, which then lowers prices) is receiving less and less conviction. The new mantra is “peak inflation really means 'plateau inflation'.'"
It is a relatively light week for data with Retail Sales for April coming in tomorrow. On Wednesday, Treasury will auction off everyone’s least favorite bond, the 20-year. It will be interesting to see how that is received.
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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