Last Week Last week was a bit of a schizophrenic one for rates and equities as narratives crisscrossed one another. The beginning of the week was dominated by talk of recession and corporate margin co...
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 hikes in 2023.
I am not sure why this is much of a revelation to the markets; the Fed has practically told us that by year-end we will be at either 4.5% or 4.75% (most probably the former) on their upper-band expectations for 2023, which are centered around 5.25%. There are six meetings to go with another 50 to 75 basis points (do the math) and they’ve already told us they should slow down in 2023!
The other related theme is the increased probability of a global recession, perhaps a deep one, at that. This helped longer rates fall a fair amount. The hydra monster of China’s “Covid-Zero” mess, the war in Ukraine, and stubborn inflation continue to provide a gloomy outlook for growth.
- The S&P 500 rose 1.54% higher for the week. The average daily move was 0.59%.
- The NASDAQ advanced 0.72% for the week. The average daily move for the week was 0.99%.
- The 2-year Treasury yield declined 5 basis points, closing at 4.47% on Friday. A high year-over-year of 4.72% and a low yield of 0.40%.
- The 10-year Treasury yield fell 15 basis points for the week, closing at 3.68% on Friday. The year-over-year high yield is 4.24% and the low yield is 1.345%.
- The VIX Index dropped 11.3% for the week, closing at 20.50 Friday. The year-over-year high at 36.45 and the low of 16.29.
- The MOVE Index was nearly unchanged for the week, closing at 129.60 on Friday. Year-over-year high at 160.72 and low of 69.1.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 4 basis points for the week closing at 78 basis points Friday. A high spread year-over-year high of 111 and a low of 49.
- High Yield corporate debt (as measured by Markit CDX) tightened 19 basis points, closing at 461 basis points on Friday. Year-over-year high of 627, and a low of 288.
- US Dollar Index fell 1.25% for the week closing at 105.96 on Friday. Year-over-year high of 114.11 and a low of 94.79.
- WTI Crude declined 4.8% using the January 2023 WTI Futures Contract, closing at 76.28 Friday. A year-over-year high of 123.70, and a low of 65.57.
- Gold, as measured by the February futures contract was nearly unchanged for the week closing at 1,768 on Friday. The high price for the front contract year-over-year is 2,043 and the low is 1,623.
- Bitcoin declined 0.8%, closing at 16,497 on Friday. High price year-over-year at 67,734 and low at 15,731.
The Week Ahead
We come in this morning with stocks lower and Treasury yields a bit higher in the front end of the curve.
Over the Thanksgiving holiday weekend, unheard-of protests against the Chinese Communist Party and President Xi grew in China over its Covid-Zero policy. A deadly fire in Urumqi, made deadly by fire rescue workers being hindered by Covid quarantine barricades, has sparked outrage across major Chinese cities.
It was a somewhat popular belief amongst economists and market analysts that the Chinese economy would return to relatively strong growth as the Covid-Zero policy would recede in 2023. The current situation, however, throws a big monkey wrench into that theory.
Big data week coming up with PCE for October on Thursday and fresh employment data coming for the JOLT and ADP reports on Wednesday and the big November BLS payroll report on Friday.
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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