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 another crazy week. We began the week with a huge, short-covering rally Monday and Tuesday, triggered by the prayer of a Fed pivot after weaker-than-expected JOLT numbers. However, by week’s end, it was all gone.
Similarly, treasury rates started the week with the same prayer only to have a violent sell-off toward the end of the week. Throughout the week, multiple Fed speakers reiterated over and over that they remain resolute in fighting inflation, which puts the odds of another jumbo-hike in rates at the upcoming November 2, 2022, FOMC a near certainty and 50 basis points more at the December meeting. More carnage took place in credit as another high-profile LBO financing was shelved due to “market conditions”.
The situation in the U.K. temporarily triaged by the Bank of England the prior week is back on the boil again. The Truss government has lost all confidence from just about everyone. Could we have big pension liability-driven investments crack up here? Combined with the Fed trying to pull off QT and vital foreign demand for our debt shrinking as the Dollar crushes all other currencies forcing the big foreign buyers to defend their currencies by letting Treasury and Agency debt roll off, we have the potential for a big problem.
- The S&P 500 dropped 1.5% for the week. The average daily move was a ridiculous 1.93%.
- The NASDAQ plunged 1.99% for the week. The average daily move for the week was even more ridiculous 2.07%.
- The 2-year Treasury yield rose 3 basis points, closing at 4.31% on Friday. High year-over-year 4.35%, low yield .20%.
- The 10-year Treasury yield rose 5 basis points for the week, closing at 3.88% on Friday. Year-over-year high yield 3.95%, low yield 1.24%.
- The VIX Index ended flat for the week, closing at 31.36 Friday. Year-over-year high 36.45 and low 15.01.
- The MOVE Index rose 4.6% for the week, closing at 148.46 on Friday. Year-over-year high 158.99 and low 51.73.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 7 basis points for the week closing at 101 basis points Friday. High spread Year-over-year high of 111 and low of 49.
- High Yield corporate debt (as measured by Markit CDX) tightened 28 basis points, closing at 582 basis points on Friday. Year-over-year high 627, and low 288.
- US Dollar Index rose 0.6% for the week closing at 112.80 on Friday. Year-over-year high 114.11 and low 93.34.
- WTI Crude exploded higher by 16.5% using the November WTI Futures contract, closing at 79.49 Friday. Year-over-year high 123.70, and low 65.57.
- Gold, as measured by the December 2022 futures contract, rose 2.2% for the week closing at 1,709 on Friday. The high price for the front contract year-over-year is 2,043 and the low is 1,633.
- Bitcoin rose 0.6%, closing at 19,551 on Friday. High price year-over-year 67,734 and low 17,785.
The Week Ahead
Oh, there’s another exciting week in front of us. Yesterday, while bond markets were closed, stocks continued taking a pounding and are off small today.
Treasury rates are down a little bit in the front end of the curve and up a bit in the back. Earnings week starts with the big banks this week. I think the market has been pretty well set up for disappointment, especially with forward guidance so, who knows? We have sold the rumor and now maybe there’s buying on the news. Maybe not.
This Thursday we get September CPI (PPI on Wednesday) and the one thing for certain is it is going to be a big moving day no matter what we get. Before the release, there will be multi-denominational prayer services like there were for Apollo 13. Let’s see what happens.
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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