The government shutdown has finally ended after a challenging 43-day stretch. However, the resulting data gap will take time to close, as the hiatus not only delayed the release of key reports but als...
Alternative Investments
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4 min read
The government shutdown has finally ended after a challenging 43-day stretch. However, the resulting data gap will take time to close, as the hiatus not only delayed the release of key reports but also halted data collection entirely. The late release last week of September CPI showed a slight increase to 3.0%. We expect September payroll information to be released on Thursday in a better-late-than-never moment. October’s CPI and employment data, on the other hand, were never gathered, leaving policymakers and analysts without a clear view of the current economic landscape as we await a decision from the BLS on how this situation will be handled. The continued lack of clarity does little to assuage investor concerns and provide much-needed relief
Fed officials have voiced increasingly hawkish perspectives recently despite increased concerns that the economic picture is fading and the employment picture is weakening. Notably, Kevin Hassett, Director of the National Economic Council and potential replacement for Powell as Chair of the FOMC, voiced his very dovish perspective that lower interest rates are required to keep the US economy on a healthy track. Opinions within the Fed remain very divided, and the lack of a clear picture without reliable data has compromised the already fragile economic environment. The underlying theme, as stated by Powell, that without reliable data, a more cautious approach is warranted, seems reasonable.
Interest rates held within their recent range of 4.05% to 4.16%, though they drifted toward the upper end by the week’s close. Equities, as reflected by the S&P 500, saw a notable selloff, finishing at 6,734. Concerns are mounting over the potential for further weakness in equity markets as valuations remain elevated. Prominent investors have expressed growing caution about the sustainability of recent gains, questioning whether momentum can continue. Moreover, if additional rate cuts fail to materialize, the ability to support corporate growth may come under increasing pressure.
From the Municipal Desk (with contributions from Ryan Riffe):
Municipals finished the holiday-interrupted week largely unchanged. Although MMD movements were muted, the market continues to perform strongly in both the primary and secondary markets. Customer allocations were limited for new issue orders, which has kept demand for secondary offers robust. Account activity remains focused on intermediate and long-term maturities, where we are seeing a rotation out of shorter callable and into current-callable structures. With markets pricing in roughly a 50% chance of rate cuts in December, it is evident that investors are looking to lock in yields for longer. Looking ahead, next week’s calendar is expected to price in about $14 billion in new issue supply. This uptick comes as no surprise, as issuers aim to take advantage of the last full trading week of the month.
30-Day Visible Supply @ $19.24 Billion
Weekly Calendar expected @ $14 Billion
2-YR Ratio @ 68%
3-YR Ratio @ 68%
5-YR Ratio @ 65%
10-YR Ratio @ 67%
30-YR Ratio @ 88%
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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