As we discussed in part one of our Q1-2 2023 Economic Outlook, the financial sector appears well-positioned for an economic downturn. That being said, we are seeing the deterioration in delinquencies ...
Capital Markets
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4 min read
Last Week
The volatility in rate markets last week was one for the ages. The week was a tale of two markets. The first was the continuation of the punishing rally that has burned shorts and frustrated yield chasers. At one point on Wednesday, the 10-year dropped ten basis points to 1.12% before reversing course and ending up unchanged for the day.
Then came the July employment report on Friday. The report was a winner across the board. This caused a sharp selloff in the longer end of the curve and a decent move in the front as a Fed tightening cycle became solidly priced in for 2023. Equities had a strong week as earnings season continued to highlight record corporate profits. On Friday, however, the tech-heavy NASDAQ showed its sensitivity to higher rates as it sold off while the S&P and Dow rallied to set new all-time highs.
- The S&P 500 advanced 1.09% closing Friday at a new all-time high. The average daily move was 0.44%.
- The NASDAQ rose 1.1%. The average daily move for the week was 0.38%.
- The two-year Treasury yield rose two basis points for the week, closing 0.21% on Friday. Year-to-date high yield 0.27%, low yield 0.10%.
- The 10-year Treasury yield rose eight basis points for the week, closing at 1.30% Friday. Year-to-date high yield 1.74%, low yield 0.91%.
- The VIX Index dropped 11% for the week, closing at 16.15 Friday. Year-to-date high 37.21, and low 15.07.
- The MOVE increased 2% for the week, closing at 62.64 on Friday. Year-to-date high 75.66, and low 42.53.
- Five-year Investment Grade Corporates (as measured by Markit CDX) were unchanged for the week closing at 49 basis points Friday. High spread year to date 58.07, low 46.88.
- High Yield corporate debt (as measured by Markit CDX) narrowed six basis points for the week, closing at 286 basis points on Friday. High spread year to date 319, low 269.
- U.S. Dollar Index strengthened 0.7% for the week, closing at 92.80 on Friday. High reading year to date 93.297, low 89.44.
- WTI Crude fell 7.7% for the week using the September WTI Futures contract, closing at 68.28 Friday. High price for the front contract year to date 75.25, low 47.62.
- Gold, as measured by the December 2021 futures contract, dropped 3% for the week closing at 1,7630 on Friday. High price for the front contract year to date 1,954, low 1,678.
- Bitcoin increased 5% for the week, closing at 42,719 Friday. High price year to date 63,410, low 29,865.
The Week Ahead
Coming in this morning, we have treasuries up slightly after their sharp selloff Friday while equities are off a bit. The news over the weekend was dominated by the growing threat of the COVID Delta variant beginning to overrun large swaths of the nation’s medical infrastructure. Many counties across the country have begun to reinstate masking and social distancing requirements. So far, this development has not affected risk assets at all, and we doubt it will anytime soon. Corporate profits are stellar; the Fed continues to provide monetary love and interest rates are still very low. If anything, big tech could blast upward if the COVID news worsens and more businesses postpone the return to the office. This week we get inflation data for July with CPI on Wednesday and PPI Thursday.
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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