Last week was punctuated by a massive bull-flattening rally in Treasury rates, spread tightening in credit, and a huge relief rally in stocks. The question to be asked now that the smoke has settled, was this a shopping bonanza for cheap bonds and stocks or perhaps a tremendous short covering rally? I would say 20% for the former and 80% for the latter. The rally got rolling Wednesday morning as Treasury announced that they would “only” be issuing $837 billion of notes and bonds November to January, a 12% increase from the last 3-month period. The market was expecting just a bit more. Additionally, Treasury anticipates “only” increasing the 3-month borrow-fest 1 one more time in 2024. Personally, I think this is akin to drowning in 50 feet of water as opposed to 45 feet but what do I know? Wednesday afternoon we received the Fed’s FOMC announcement and Chairman Powell press conference. Personally, I believe that the Fed delivered another “Hawkish Pause”. Powell reiterated that the Fed is nowhere near easing policy, but he did comment that perhaps the tightening of conditions, brought on by the huge rate selloff experienced in September and October could do some of the work for the Fed. Both rates and equity markets liked the sound of that, pretty much taking any further policy rate hikes off the table while moving up rate cuts in 2024. On Friday we received the October employment report, finally the one the Fed was looking for, softer by nearly every measure. With this, bond prices soared as a massive, short covering rally took hold. What seems to be forgotten in the jubilation is the Fed has consistently communicated that it needs to see a real trend as opposed to one or two good reports. Additionally, this employment report was “softer” but certainly not “weak”. Regardless, by mid-morning 4 rate cuts for 2024 were priced in.
We start the week with rates markets selling off a bit after last week’s furious rally. Equities start the week up small after their huge jump last week. The economic calendar is very light this week. However, we have a ton of Fed speak happening throughout the week. I have a feeling we’ll drain out some of last week’s rally as we move along over the next few days. Good luck!
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