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...
As we began the week, you could just feel the uneasiness at the prospect of another disastrous CPI report coming Thursday as both stocks and bonds did their “Nowhere to Hide” dance.
Luckily, the complete evaporation of the latest “Next Warren Buffet” Sam Bankman-Fried’s FTX took our minds off the impending CPI report as the latest crypto farce played out in real-time. FTX and its native token FTT proved to us yet again that if the only thing holding up a “token” is blind faith in its creator or a stablecoin being “as good as a dollar” based on an algorithm (Terra/Luna fiasco this past spring), it can all come crashing down in an instant, which it did…again.
Then, Thursday came and we got a surprise cooler-than-expected CPI print, and markets surged. In the Treasury market, traders immediately took out the possibility of a 75-basis point hike in December and a 2023 peak rate of 5% or greater. Stocks surged with the S&P up over 5% and the NASDAQ up over 7% on Thursday.
While it felt really good to see the relief rally, when markets move that much in a day based on one number it smacks of massive short covering. At this point, however, we’ll take what we can get.
- The S&P 500 rose 5.89% for the week. The average daily move was 2.01%.
- The NASDAQ surged 8.09% for the week. The average daily move for the week was 2.61%.
- The 2-year Treasury yield dropped 33 basis points, closing at 4.33% on Friday. High year-over-year 4.72%, low yield .40%.
- The 10-year Treasury yield fell 35 basis points for the week, closing at 3.81% on Friday. Year-over-year high yield 4.24%, low yield 1.345%.
- The VIX Index fell 8.3% for the week, closing at 22.52 Friday. Year-over-year high 36.45 and low 16.29.
- The MOVE Index declined 13% for the week, closing at 111.69 on Friday. Year-over-year high 160.72 and low 69.1.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 7 basis points for the week closing at 83 basis points Friday. High spread Year-over-year high 111 and low of 49.
- High Yield corporate debt (as measured by Markit CDX) tightened 37 basis points, closing at 486 basis points on Friday. Year-over-year high 627, and low 288.
- US Dollar Index plunged 4.13% for the week closing at 106.29 on Friday. Year-over-year high 114.11 and low 94.79.
- WTI Crude declined 3.9% using the December WTI Futures contract, closing at 88.96 Friday. Year-over-year high 123.70, and low 65.57.
- Gold, as measured by the December 2022 futures contract, rose 5.5% for the week closing at 1,769 on Friday. High price for the front contract year-over-year 2,043 and low 1,633.
- Bitcoin crashed 21% closing at 16,757 on Friday. On Wednesday Bitcoin hit a low of 15,731. High price year-over-year 67,734 and low 15,731.
The Week Ahead
We come in this morning with stocks off a bit and Treasury yields higher. Over the weekend, Federal Reserve Governor Chris Waller reminded everyone the Fed isn’t going to change course over one “good” CPI print. Inflation is still way too high, and the Fed is going to have to see multiple months of real progress before they even think about pausing, which is exactly what the Fed has been telling us since August at Jackson Hole.
Still, however, the better-than-expected October CPI report could turn the December hike into a 50-basis point increase as opposed to 75 basis points. However, we need to remember that the Fed will see another payroll report and another CPI report before its December 14 meeting.
This week should be interesting as we get to see the continued FTX unraveling. “The Smartest Guys in the Room – Part 2” has begun production!
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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