Last Week It was an ugly week for just about every financial asset as Treasury rates soared, spread product (particularly munis) was clobbered, while stocks took a dive. We had a quadruple dose of cen...
Last week the theme of “high(er) for longer” in rates and “soft landing” for the economy continued to add to the faithful. What is interesting to note is the 2s-10s curve has now been inverted since July 2022. Never before has the yield curve been inverted this long without triggering a recession. The big data point for the week was Wednesday’s release of August CPI. The report came in a touch higher than expected as core CPI printed 0.278% month over month, higher than the expected 0.2%. On the whole, the report was probably a bit disappointing to the Fed, but nothing to put a September FOMC hike back on the table. Retail sales for August came in stronger than expected, showing the overall economy shows little sign of recession. Meanwhile, across the pond the European Central Bank raised its policy rate another 25 basis points on Thursday signaling that PERHAPS they are done. This pummeled the Euro and pushed the US Dollar higher. I’ve been keeping an eye on oil in non-dollar terms. Looking at the Euro, crude has increased approximately 14% since the beginning of August. Prior to last winter, the fear in Europe, especially Germany was skyrocketing energy costs as the main supplier is…Russia. Luckily the winter turned out to be very mild. Germany, the largest economy in Europe (who’s industry is built on cheap natural gas) faces the same risk for the most part this winter. Something to keep an eye on in my opinion. Watch the weather reports!
- The S&P 500 declined 0.15% for the week. The average daily move was 0.68%.
- The NASDQ fell 0.39% for the week. The average daily move for the week was .97%.
- The 2-year Treasury yield rose 5 basis points, closing at 5.04% on Friday. High year-over-year 5.08%, low yield 3.77%.
- The 10-year Treasury yield increased 6 basis points for the week, closing at 4.33% on Friday. Year-over-year high yield 4.34%, low yield 3.31%.
- The VIX Index was nearly unchanged for the week, closing at 13.79 on Friday. However, on Thursday the index set a new year-over-year low of 12.82. Year-over-year high 34.45 and low 12.82.
- The MOVE Index dropped 7.41% for the week, closing at 96.61 on Friday, a new year-over-year low. Year-over-year high 198.71 and low 96.61.
- 5-year Investment Grade Corporates (as measured by Markit CDX) spreads tightened 1 basis point, closing at 63 basis points on Friday. On Thursday the index printed a new year-over-year low of 62.29. High spread Year-over-year high 111 and low of 62.
- 5-year High Yield corporate debt (as measured by Markit CDX) spreads declined 6 basis points, closing at 424 basis points on Friday. Year-over-year high 627, and low 408.
- US Dollar Index advanced .22% closing at 105.32 on Friday. Year-over-year high 114.11 and low 99.77.
- WTI Crude rose 3.7% for the week, using the November WTI Futures contract, closing at 90.02 on Friday. Year-over-year high 92.64, and low 66.74.
- Gold, as measured by the December futures contract, increased 0.15% for the week, closing at 1,946 on Friday. High price for the front contract year-over-year 2,056 and low 1,624.
- Bitcoin rose 2% for the week closing at 26,418 on Friday. High price year-over-year 31,386 and low 15,632.
The Week Ahead
We start the week this morning with rates grinding higher led by the 2-year note. Global equities are down around 1%. It is FOMC week! It is widely expected that the Fed will hold the policy rate steady at 5.25%-5.5%. The real story will be what their strategy is for the rest of the year and early next year. At this meeting we get a new dot-plot and updated forecasts on GDP, unemployment, and core inflation. The dot-plot released at 2pm Wednesday followed by the Chairman’s press conference at 2:30 will be the main event. Stay tuned!
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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