Published Date 9/16/2022
Last night though the 10 briefly exceeded the resistance level at 3.47% increasing to 3.48% then slipped back to unchanged from yesterday at 3.45% at 8:30 am ET this morning. No end in sight for the stock indexes, in futures trading at 8:30 am the DJIA -268, NASDAQ -138, S&P -38. MBS prices at 8:30 am down 14 bps from yesterday’s selling.
Another big bank adding its view that there is more weakness to come in the equity markets. US stocks haven’t seen the worst of this year’s declines yet against the backdrop of scorching inflation and a hawkish Federal Reserve, according to Bank of America Corp. strategists. The “inflation shock ain’t over” and an earnings recession will likely drive stocks to new lows, strategist Michael Hartnett said in a note. Although the bank said US equity funds posted their biggest inflows in more than a month in the week to Sept. 14, stock markets have been under pressure again since Tuesday after a hotter-than-expected consumer price report fueled the S&P 500’s biggest one-day drop since June 2020. His analysis of past bear markets also shows average peak-to-trough declines of about 37% for the S&P 500 over 289 days. That suggests the current bear market, which the benchmark index confirmed in June, will end in October with the gauge at 3,020 points — 23% below current levels, the strategist said. His comments echo Goldman Sachs, Morgan Stanley, Société Générale SA, and Sanford C. Bernstein. JP Morgan Chase though still hanging on to a soft landing.
Next Wednesday the FOMC will increase the FF rate, the question is, will the Fed move 100 bps or 75 bps? Of course, no one knows, but the betting has increased that a 100 bp increase is a growing possibility. We still hold that the Fed will do just 75 bps, think the Fed will want to see how the recent increases will filter into and through the economy and what impact on inflation has had after the recent increases. In the meantime, until next Wednesday afternoon interest rate markets shouldn’t change much in either direction.
The FOMC will raise rates by 75 basis points for a third consecutive meeting. A month ago, the view was that in 2023 the Fed would begin lowering rates after inflation was corralled, now Fed forecasts released at the meeting are expected to show the upper bound of the range at 4% by year-end and edging higher next year, before cuts in 2024 take it back to 3.6%. A big step up from Fed forecasts in June, reflecting a tougher fight against inflation after August core consumer-price growth came in hotter than expected. The survey of 45 economists was conducted Sept. 9-14.
At 9:30 am the DJIA opened -367, NASDAQ -148, S&P -42. 10 yr. note 3.48% +3 bps. FNMA 5.00 30 yr. coupon and the 5.5 coupon at 9:30 am both down 16 bps from yesterday; from 9:30 am yesterday the 5.0 coupon down -27 bps, the 5.5 coupon -18 bps.
At 10 am the mid-month U. of Michigan consumer sentiment index was expected at 59.9 from 58.2 in August, as released the index 59.5
No stopping the strength of the US dollar; stronger again today, an almost daily upward trajectory over the last six months.
Source: TBWS
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