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 a strange week, which beats the awful weeks that we’ve been having. Stock indices posted their second straight week of large gains in the face of some of the biggest representatives: Amazon (down 14% over 3 days), Microsoft (down nearly 10% over 2 days), Meta (24% in one day!), and one major global bank Credit Suisse (19% in one day) posting terrible to God-awful earnings announcements.
Corporate credit also performed well. Additionally, long-term Treasury rates posted a strong rally with the 10-year note declining 20 basis points despite the Employment Cost Index showing the continued strength of the labor market and not much more talk about any kind of Fed pivot, although there was some speculation over when a potential pause would take place. Housing data continued to come in weaker as mortgage rates cleared 7% (according to the latest weekly Freddie Mac Primary Mortgage Market Survey).
- The S&P 500 rose 3.97% for the week. The average daily move was 1.33%.
- The NASDAQ advanced 2.23% for the week. The average daily move for the week was 1.93%.
- The 2-year Treasury yield fell 6 basis points, closing at 4.42% on Friday. High year-over-year 4.61%, low yield 0.40%.
- The 10-year Treasury yield declined 20 basis points for the week, closing at 4.22% on Friday. Year-over-year high yield 4.02%, low yield 1.345%.
- The VIX Index fell 8% for the week, closing at 27.28 Friday. Year-over-year high 36.45 and low 15.01.
- The MOVE Index declined 8% for the week, closing at 144.6 on Friday. Year-over-year high 160.72 and low 51.73.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 6 basis points for the week closing at 88 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 41 basis points, closing at 501 basis points on Friday. Year-over-year high 627, and low 288.
- US Dollar Index fell 1.1% for the week closing at 110.75 on Friday. Year-over-year high 114.11 and low 93.34.
- WTI Crude advanced 3.4% using the December WTI Futures contract, closing at 87.90 Friday. Year-over-year high 123.70, and low 65.57.
- Gold, as measured by the December 2022 futures contract, fell 0.7% for the week closing at 1,645 on Friday. The high price for the front contract year-over-year is 2,043 and the low is 1,633.
- Bitcoin rose 7.6% closing at 20,636 on Friday. High price year-over-year 67,734 and low 17,785.
The Week Ahead
We come into the week with Treasury yields up, with the front end leading the way and U.S. equity futures down a fair amount. This week will be all about the Fed’s FOMC, with the statement and presser on Wednesday at 2 p.m.
It is widely expected that the Fed will go up by 75 basis points and I doubt Chairman Powell will step back at all from the fire and brimstone, and why should he? Whatever he can accomplish jawboning the markets without necessarily having to do more than he wants, then why not?
On Friday, we get October employment numbers and those should help decide whether the December 14 FOMC goes 50 basis or 75 basis points. Currently, Fed Fund futures and OIS swaps have about a 41% probability of about it being 75bps. Earnings week rolls on and we’ll see if equities can hold all or some of the gains that they’ve achieved in the last couple of weeks.
An index is unmanaged and not available for direct investment. Definitions sourced from The Bloomberg Global Aggregate Negative Yielding Debt Market Value Index represent 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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