Wall Street’s main indexes closed lower on Thursday after a U.S. Treasury auction sent bond yields higher while investors were already digesting data that showed consumer prices rose more than anticipated in September.
After the data, the S&P 500 spent the morning zig-zagging between red and green. It turned decisively lower after a 1 p.m. EDT (1700 GMT) auction of 30-year U.S. Treasuries met weak demand.
US consumer prices advanced at a brisk pace for a second month, reinforcing the Federal Reserve’s intent to keep interest rates high and bring down inflation. Expectations ahead of Thursday’s publication of consumer price index numbers for September were for a continued clear reduction that would eliminate the last concerns that the Federal Reserve would be forced to raise interest rates once more. In the event, the market responded as though it had received a nasty shock, with bond yields surging higher while stocks sold off. An imminent Fed hike still looks unlikely — but evidently, many in the markets were hoping for any such chance to be extinguished.
The number was dominated by housing costs. Shelter inflation, on a year-on-year basis, is still above 7%. The clearest reason for disquietcomes from the “supercore” measure that Fed Chair Jerome Powell has emphasized in recent months — services excluding shelter. This category is heavily led by wage inflation, as labor is a large share of costs for such businesses.
Sentiment reversed after the 30-year Treasury auction, which drew weak demand and weighed heavily on the broader market sentiment. Swap contracts linked to future interest-rate decisions pushed the odds of another quarter-point hike back to about 50%, up from about 30% as recently as Wednesday.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Today’s post is brought to you by Ribbon Property Consultants.
This has been another crazy week on the markets, as the truth of higher rates for longer has started to permeate not only bond markets, but equity markets too.
And after a stunningly strong U.S. jobs report bolstered the case for more tightening from the Federal Reserve, the U.S. Treasury yield surge that has shaken markets in recent weeks may have further to run.
As I discussed in my last show, US Jobs growth for September nearly doubled expectations as nonfarm payrolls increased by 336,000 for the month, strengthening views that policymakers will need to keep interest rates elevated to cool inflation.
That’s bad news for investors who were looking for a respite from a rise in Treasury yields that has wreaked havoc throughout markets over the past month, bruising stocks, supercharging the dollar and pushing mortgage rates to their highest levels in more than two decades. Treasury yields of course move inversely to bond prices.
The interplay between bearish fractals and potential bullish triggers continues to shape the unpredictable landscape. But we need to watch the unrealized losses among holders of bonds, because at some point the truth will out. And meantime, equities are still priced for a goldilocks soft landing, which is probably unlikely.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
This has been another crazy week on the markets, as the truth of higher rates for longer has started to permeate not only bond markets, but equity markets too.
And after a stunningly strong U.S. jobs report bolstered the case for more tightening from the Federal Reserve, the U.S. Treasury yield surge that has shaken markets in recent weeks may have further to run.
As I discussed in my last show, US Jobs growth for September nearly doubled expectations as nonfarm payrolls increased by 336,000 for the month, strengthening views that policymakers will need to keep interest rates elevated to cool inflation.
That’s bad news for investors who were looking for a respite from a rise in Treasury yields that has wreaked havoc throughout markets over the past month, bruising stocks, supercharging the dollar and pushing mortgage rates to their highest levels in more than two decades. Treasury yields of course move inversely to bond prices.
The interplay between bearish fractals and potential bullish triggers continues to shape the unpredictable landscape. But we need to watch the unrealized losses among holders of bonds, because at some point the truth will out. And meantime, equities are still priced for a Goldilocks soft landing, which is probably unlikely.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
In a week where Central Bankers did not lift rates in the US, UK, or Japan, although the ECB did last week, the key message coming though was simple. Expect rates to stay close to current levels for some time, and if inflation does prove stickier, then rates might still go higher. But the real action this week was in the Bond markets, with yields out along the curve up, as prices fell.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
In a week where Central Bankers did not lift rates in the US, UK, or Japan, although the ECB did last week, the key message coming though was simple. Expect rates to stay close to current levels for some time, and if inflation does prove stickier, then rates might still go higher. But the real action this week was in the Bond markets, with yields out along the curve up, as prices fell.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
As I said recently, being data dependent means higher volatility as markets swing from bullish to bearish and back. While in Australia the bulls ran hard on Friday, later Wall Street experienced a significant notable downturn as investors responded to the news of a strike by the United Auto Workers against leading automakers Ford, General Motors and Stellantis. U.S. manufacturing output barely rose in August amid a decline in motor vehicle production before any industrial action starts.
Adding to the volatility was the fact that piles of derivatives contracts tied to stocks, index options and futures expired on Friday, compelling traders to roll over their existing positions or to start new ones. This time, it coincided with the rebalancing of benchmark indexes including the S&P 500, another catalyst for more share transactions.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
As I said recently, being data dependent means higher volatility as markets swing from bullish to bearish and back. While in Australia the bulls ran hard on Friday, later Wall Street experienced a significant notable downturn as investors responded to the news of a strike by the United Auto Workers against leading automakers Ford, General Motors and Stellantis. U.S. manufacturing output barely rose in August amid a decline in motor vehicle production before any industrial action starts.
Adding to the volatility was the fact that piles of derivatives contracts tied to stocks, index options and futures expired on Friday, compelling traders to roll over their existing positions or to start new ones. This time, it coincided with the rebalancing of benchmark indexes including the S&P 500, another catalyst for more share transactions.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
In recent months Central Banks have been able to say inflation was falling back towards their targets. But, this had little to do with their rate hiking cycle, and more to the adjustment in supply-side prices, especially energy. The so-called base effects where big lifts in inflation months ago dropped out helped the narrative. But the inflation battle is far from over.
This is because ahead the base effects will reverse. And then we must consider the recent spike in energy prices, plus higher wages flowing through to the services sector of the economy. So overall, I think it is likely that inflationary pressures will re-accelerate in the months ahead. In the US as oil and gasoline continue their upward trend, CPI could potentially rise back above 5.1%-5.5% by year-end. Therefore, inflation levels could remain elevated for a more extended duration than is presently anticipated by financial markets.
Central Bankers have been at pains to say they are being data dependant in setting monetary policy. But the problem now is markets are chasing every new scrap of news, and then trying to react, ahead of the Central Bankers, creating an uncertainty monster.
So an awful August gives way to an uncertain September, investors hope data this month will confirm that the seemingly relentless rise in interest rates will end soon, meaning respite for both stocks and bonds.
But there are a few snags. This September is chock-full of risk events, including central bank meetings, a G20 summit and make-or-break data, not to mention that it tends to be the worst month of the year for the mighty S&P 500.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
Digital Finance Analytics (DFA) Blog
The Problem With Being Data Dependant, Is Being Data Dependant!
Central Bankers have been at pains to say they are being data dependant in setting monetary policy. But the problem now is markets are chasing every new scrap of news, and then trying to react, ahead of the Central Bankers, creating an uncertainty monster.
So an awful August gives way to an uncertain September, investors hope data this month will confirm that the seemingly relentless rise in interest rates will end soon, meaning respite for both stocks and bonds.
But there are a few snags. This September is chock-full of risk events, including central bank meetings, a G20 summit and make-or-break data, not to mention that it tends to be the worst month of the year for the mighty S&P 500.
http://www.martinnorth.com/
Go to the Walk The World Universe at https://walktheworld.com.au/
