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Tuesday, November 29, 2022

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Stocks Sink As Yield Curve Tumbles To Biggest Inversion In 40 Years

Good‘ retail sales (thanks to gasoline prices rebounding), ‘bad‘ industrial production and capacity utilization data, and really ‘ugly‘ homebuilder sentiment started the day on a down note.

Then FedSpeak killed the ‘pause’ narrative…

The Fed’s Mary Daly showed her hawkishness off again reiterating that the terminal rate is notably higher and it will stay there for longer…

“Somewhere between 4.75 and 5.25 seems a reasonable place to think about as we go into the next meeting,” Daly said in a Wednesday interview on CNBC. “And so that does put it in the line of sight that we would get to a point where we would raise and hold.”

“Pausing is off the table right now, it’s not even part of the discussion,” she said. “Right now the discussion is, rightly, in slowing the pace.”

Daly also warned the ‘peak inflationistas’:

“One month of data does not a victory make.”

Fed Governor Michael Barr warned that The Fed is “paying attention to loan losses that are ticking up.”

All of which sent terminal rate expectations higher… (and post-recession rate-cut expectations higher). Notably, Goldman lifted its terminal rate forecast to 5.00% – 5.52%…

Source: Bloomberg

Recession risks from The Fed’s hawkishness sent yield curves deeper into inversion with 2s10s at its most inverted since 1982…

Source: Bloomberg

And the final nail in the coffin, 3m10Y pushed a new cycle low (inversion)…

Source: Bloomberg

All that recession risk pressured the reality-check in stocks. Small Caps were the day’s biggest loser followed by Nasdaq and S&P as The Dow desperately clung to unch…

And sent longer-end yields lower. On the week, 2Y yields are up around 2bps on the week while 30Y yields are down 17bps…

Source: Bloomberg

2s10s tumbled 14bps today intraday…

Source: Bloomberg

30Y yields tumbled back below 4.00% (at 6 week lows), breaking below its 50DMA. 30Y yields are down 6 straight days (-47bps) – the biggest yield drop since March 2020…

Source: Bloomberg

Who could have seen that bond bid coming?

The Dollar continued to relatively flatline today despite notable moves in bonds and stocks….

Source: Bloomberg

Another exchange or two (well the lending groups) froze withdrawals and that took the shine off crypto even more. Bitcoin slipped back below $17,000…

Source: Bloomberg

 

Oil prices ended the day lower (geopolitical demand jitters) despite an inventory-draw lifting WTI…

Gold prices ended higher on the day, but traded in a narrow band…

Finally, will the 2008 analog reality reassert itself before The Fed meeting?

Source: Bloomberg

Or is Xmas (post-midterm) seasonality win?

This post was originally published on this site

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