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 central bank policy meetings (Fed, Bank of England, European Central Bank and Bank of Japan) during the week. The overriding message, despite different economic conditions for each policy making body, was inflation is still a menace and the fight is far from over, except for the Bank of Japan who continues to play with fire. On Wednesday, the Fed signaled rather emphatically that they will be higher for longer as the FOMC “dot plot” signaled one more hike in 2023 and only two cuts in 2024. At the last dot plot release (June FOMC) four cuts were the consensus. Higher for longer is tough medicine. When we combine this with building budget deficits and growing supply in government borrowings without the giant non-economic buyer (the Fed), we get a whole lot of pain at the long end of the curve as the 10-year note bounced up against 4.50%.
The carnage in rates continues as we come into a new week while the 10-year Treasury note is taking another run at breaking 4.50%. European equities are down over 1% while U.S. futures are off about a quarter percent. Economic data this week includes Philly Fed Tuesday, and August PCE data on Friday. Also, this week the drama over another government shutdown and the continuation of the UAW strike will influence markets.
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