US two-year bond yield fell to 4.8% amid Fed speech: Markets wrap

US two-year bond yield fell to 4.8% amid Fed speech: Markets wrap

(Bloomberg) — Treasuries rose, as traders delved into comments from a slew of Federal Reserve spokesmen and the latest economic readings for clues about the central bank’s next steps.

Most read from Bloomberg

US two-year bond yields fell nine basis points to 4.8% before the sale of seven-year bonds worth $39 billion. The S&P 500 was little changed after the index reached “overbought” levels in a rally that put the market on track for one of its biggest gains on record in the month of November. Morgan Stanley fell on analyst downgrades. Micron Technology Inc. Chipmakers lost ground after making a modest increase in their revenue forecasts and expecting more operating expenses.

“It’s a busy day for Fedspeak,” said Will Cumbernoll, macro strategist at FHN Financial. “The real focus will be on how well Fed officials respond to markets’ growing confidence that the Fed has reached its final interest rate and that rate cuts are in the pipeline as early as the first half of next year.”

Just a few days before a “blackout period” in which Fed officials do not speak publicly, Fed Governor Christopher Waller said a recent slowdown in economic activity may signal that policy is tight enough to contain inflation that remains too high. In the absence of any major shocks, Waller indicated that he was confident in the United States’ ability to achieve a soft landing. Chicago Fed President Austin Goolsbee noted that inflation is falling, but is not yet back on target.

Speakers also include: Kathleen O’Neill Bice, Michelle Bowman, and Michael Barr.

Read: Housing market mystery haunts Wall Street in 2024: Watch

US consumer confidence rose for the first time in four months in November, supported by more optimistic views on the outlook for the labor market. Home prices have reached a new record high, according to seasonally adjusted data from S&P CoreLogic Case-Shiller.

The good news for investors is that the recession has not arrived yet, and that makes an end-of-year rally likely, according to Lauren Goodwin of New York Life Investments. She noted that in past economic cycles, markets tend not to estimate a recession until unemployment claims are high and earnings are completely down — signs that a recession has already arrived.

“The modest slowdown in inflation and employment growth means that the ‘Fed relief surge,’ accompanied by rallies in stocks, bonds and credit like we are seeing now, could continue,” Goodwin said. “Our concern is that this late forgetting cycle is no different from those of the past: a balmy moment before the reason for moderating inflation – slowing economic growth and employment – ​​becomes evident in the data.”

Bank of America Corp. clients were net buyers of U.S. stocks last week, with institutional and retail investors leading purchases while hedge funds sold shares. Quantitative strategists led by Jill Carey Hall said clients moved $2.6 billion into US stocks, with flows into both individual names and exchange-traded funds.

The S&P 500’s rally this month is now running out of steam, according to Chris Montagu, a strategist at Citigroup. He said futures flows last week were “mixed,” making net positions in the benchmark index look “a bit bearish.”

The recent sharp decline in volatility heading into the end of the year creates hedging opportunities given the cloudy outlook for stocks, according to Christian Mueller-Glesmann, a strategist at Goldman Sachs Group.

“After the recent rise in stocks, we believe there is an attractive entry point to hedge rebound risks,” he noted. “Volatility across assets continued to ease, supported by markets further embracing the mild ‘inverse’ backdrop in the US with inflation normalizing faster than expected and growth remaining resilient.”

He added that this decline led to a widening of the gap between interest rate fluctuations, which are supposed to return to normal in 2024.

A Bloomberg Intelligence model known as the Market System Index — which groups periods into three stages called accelerating growth (green), moderate growth (yellow), and decline (red) — has been stuck in the middle for the past nine months. That suggests equity returns expectations should remain moderate until the Fed shifts away from raising interest rates to lowering them, according to Gina Martin Adams, chief equity strategist at BI, and senior associate analyst Gillian Wolf.

The most active investors in the U.S. Treasury market are as optimistic as ever, according to a weekly survey conducted by JPMorgan Chase & Co. since 1991.

JPMorgan’s Treasury client survey for the week ending November 27 showed that 78% of active clients were long compared to their benchmark, up from 56% the week before. None of them were short for the second week in a row, for a net long position of 78% which was the largest in the history of the survey. The rest of the respondents were neutral.

Meanwhile, hedge funds have bet on a bullish dollar this month despite the currency’s decline as a result of weak US economic data and rising expectations that the Federal Reserve’s most aggressive interest rate hike cycle in a generation is coming to an end.

A measure of leveraged net long positions in the dollar against eight currencies rose to its highest level since February 2022 as of Nov. 21, according to Commodity Futures Trading Commission data compiled by Bloomberg. Net short positions stood at 103,042 contracts, just above the previous YTD high seen in April, after bottoming out around a net short position of around 72,000 contracts in March.

“The US dollar is witnessing weakness across the board as the market becomes increasingly convinced that the next step from the US central bank will be to cut interest rates, perhaps as early as the second quarter,” said Fouad Razaqzadeh, market analyst at City Index. And Forex.com.

The most prominent features of the company:

  • PG&E said it will pay a dividend for the first time in about six years as part of the California utility giant’s efforts to restore its financial health after emerging from bankruptcy.

  • Boeing was upgraded at RBC Capital Markets to Outperform as shares are in the early stages of a “major shift in sentiment” amid strong demand.

  • Zscaler Inc., a security software company, confirmed its calculated billing forecast for 2024 was slightly below estimates at the midpoint.

  • Bristol-Myers Squibb has agreed to pay up to $2.3 billion to collaborate with Avidity Biosciences Inc. In developing drugs to treat rare heart diseases.

  • Reddit Inc. is once again in talks with potential investors about an initial public offering for the social media company, according to people familiar with the matter.

  • Adobe Inc’s planned purchase of Figma Inc. The $20 billion design software industry could be banned by Britain’s competition watchdog unless it offers solutions to solve competition problems.

  • Bank of Nova Scotia missed fiscal fourth-quarter earnings estimates as the company set aside more money than expected for potentially distressed loans.

  • Panama’s Supreme Court has ruled against a law approving a contract with First Quantum Minerals Ltd, raising doubts about the future of one of the world’s largest copper operations.

  • Fast-fashion retailer Shein has filed confidentially with U.S. regulators for an initial public offering that could take place next year, according to a person familiar with the matter.

Main events this week:

  • Interest rate decision in New Zealand, Wednesday

  • The OECD releases its semi-annual economic forecasts on Wednesday

  • Eurozone economic confidence, consumer confidence, Wednesday

  • Bank of England Governor Andrew Bailey speaks on Wednesday

  • US wholesale inventories and GDP on Wednesday

  • Cleveland Fed President Loretta Mester speaks Wednesday

  • The Fed releases its Beige Book on Wednesday

  • China Non-Manufacturing PMI, Manufacturing PMI, Thursday

  • OPEC+ meeting Thursday

  • Eurozone CPI, unemployment, Thursday

  • US Personal Income, Personal Consumption Expenditures Deflator, Initial Jobless Claims, Pending Home Sales, Thursday

  • China Caixin Manufacturing PMI, Friday

  • S&P Eurozone Global Manufacturing PMI, Friday

  • US Construction Spending, ISM Manufacturing, Friday

  • Federal Reserve Chairman Jerome Powell will participate in a “fireside chat” in Atlanta on Friday

  • Chicago Fed President Austin Goolsbee speaks Friday

Some key movements in the markets:

Stores

  • The S&P 500 rose 0.1% as of 10:43 a.m. New York time

  • The Nasdaq 100 rose 0.2%.

  • The Dow Jones Industrial Average rose 0.3%

  • The Stoxx Europe 600 index fell by 0.4%.

  • MSCI World Index rose 0.3%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.4%.

  • The euro rose 0.4 percent to $1.1002

  • The British pound rose 0.6 percent to $1.2698

  • The Japanese yen rose 0.6 percent to 147.73 yen to the dollar

Digital currencies

  • Bitcoin rose 1.4% to $37,552.06

  • Ethereum rose 1.1% to $2,038.62

Bonds

  • The yield on the 10-year Treasury note fell three basis points to 4.36%.

  • The yield on 10-year German bonds fell by four basis points to 2.51%.

  • The yield on British 10-year bonds fell four basis points to 4.17%.

Goods

  • West Texas Intermediate crude rose 1.9% to $76.25 a barrel

  • Gold in spot transactions rose 0.8 percent to $2,031.21 per ounce

This story was produced with assistance from Bloomberg Automation.

-With assistance from Jason Scott, Tasya Sibahutar, Alex Nicholson, Carter Johnson, Masaki Kondo, and Michael Msika.

Most read from Bloomberg Businessweek

©2023 Bloomberg L.P

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *