Last Week Last week was the case of Powell strikes back. Once again, many market participants seemed to hear what they wanted to hear from the prior week’s FOMC meeting and priced in, yet another “Fed...
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Last Week
It was a bit of a strange one last week as risk assets posted their first sustained rally in weeks. I say it is strange because everything else continued to paint a picture of a global economy in the throes of major crises. Numerous Fed officials, including Chairman Powell, pointed strongly to a 75-basis point hike next week at their FOMC meeting (September 20-21) as well as a “higher for longer” approach to slaying inflation. I believe equites are not at the point, yet, to rally off of Fed resolve to kill inflation for the long-term. Hopefully, that comes further down the road.
Meanwhile, as the front end of the Treasury yield curve set new local highs, the U.S. Dollar continued a tear, also setting highs against major currency pairs not seen in decades. The news out of Europe is horrible. The model of the heavy industry fueled by cheap Russian gas is in full retreat.
I do not think people realize how devastating this development is, at least not as far as how risk assets are performing. Perhaps we are seeing a fair amount of short covering in stocks and to some extent high yield through CDX credit default swaps.
- The S&P 500 rose 3.6% for the week. The average daily move was 1.11%.
- The NASDAQ jumped 4.1% for the week. The average daily move for the week was 1.40%.
- The 2-year Treasury yield sprang up 17 basis points closing at 3.56% on Friday. A new year-over-year high. High year-over-year 3.56%, low yield .20%.
- The 10-year Treasury yield rose 12 basis points for the week, closing at 3.31% on Friday. Year-over-year high yield 3.47%, low yield 1.24%.
- The VIX Index fell 11% for the week, closing at 22.79 Friday. Year-over-year high 36.45 and low 15.01.
- The MOVE Index rose 0.6% for the week, closing at 121.54 on Friday. Year-over-year high 156.16 and low 51.73.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 11 basis points for the week closing at 81 basis points Friday. High spread Year-over-year high 102 and low of 46.
- High Yield corporate debt (as measured by Markit CDX) tightened by 57 basis points, closing at 471 basis points on Friday. Year-over-year high 588, and low 273.
- US Dollar Index declined 0.5% for the week closing at 109.00 on Friday. On Tuesday the index set a year-over-year high of 110.21. Year-over-year high 110.21 and low 92.54.
- WTI Crude was unchanged for the week using the October WTI Futures contract, closing at 86.79 Friday. Year-over-year 123.70, and a low of 65.57.
- Gold, as measured by the December 2022 futures contract, declined 0.3% for the week closing at 1,729 on Friday. The high price for the front contract year-over-year is 2,043 and the low is 1,700.
- Bitcoin rose 7%, closing at 21,300 on Friday. High price year-over-year 67,734 and low 17,785.
The Week Ahead
We come in this morning with stocks higher and the Treasury yields lower from Friday’s close. The U.S. Dollar is backing off a fair amount following the last few weeks’ furious rally. The Fed is now in its quiet period before next week’s FOMC. The Fed rock stars made a very concerted effort to set the markets up for 75 basis points last week on the talk-show and lecture circuit.
Both Fed Fund Futures and OIS swaps are pricing in 75 basis points with a near 90% probability. Mission accomplished. All eyes are on Tuesday’s release of the August CPI report. Currently, economists polled by Bloomberg are calling for a 0.3% rise month over month in Core CPI and a six percent rise year-over-year. Stay tuned!
Definitions
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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