Stocks offered a glimmer of hope into yesterday’s close and are back down big early this morning signaling IVOL discounts yesterday of -17%, -21%, and -7% respectively. That’s what bear markets do, hope followed by disappointment.
30yr Yields -5 bps
10yr Yields -5bps
2yr Yields -3bps
We’ve seen some subtle changes in Fed language as of late (and certainly no forward guidance that blistered bonds all throughout the Spring). It seems as if the Fed is set on 50bps in June and 50bps in July and has offered nothing more or less as of late. Blackrock’s head of Fixed Income Rick Rieder put a note out late last week giving his full macro view of the current state of Financial Markets, describing it as a “Cat 5 Financial Hurricane”. The US Aggregate Bond Index (created in 1973) and the SP500 large cap index have never experienced double digit losses in the same year. Only in 2000 were both indexes down together single digits. He also touches on of course Inflation and Monetary Policy, and suggests “the absolute highs of inflation are likely behind us” and that the Bond market has all of the Fed’s expected hikes priced in, which of course we concur with. However, in an effort to combat housing prices from rising unabatedly, in repeat of 2006-07, and inflation expectations becoming engrained, they are forced to stay on a “hawkish” path. And another KEY takeaway from his letter was when he mentioned in order to restore “smoothly functioning” financial markets (pulling us out of the path of the Hurricane) it’s likely the Fed stop would stop its tightening cycle prior to reaching their 2% inflation mandate – in other words, the Fed will be likely forced to accept a higher level of inflation above mandate.
If any are interested, I’d be happy to forward the full letter.
Gold (Aug) +0.34% (Immediate OB)
Copper getting taken to the woodshed this morning, -1.82, after signaling immediate OB/Bearish trend yesterday. Gold is also signaling immediate OB except it is carrying BULLISH trend! No change in our outlook for Gold as of now – and that is that we’re in a “bottoming phase”.
EUR/USD is strengthening this morning (and yesterday) on the idea of a July “liftoff” by the ECB. We’re going to see how much further it gets as the Euro Zone is facing back to back Risk Off quarters. Regardless, the Fed remains in a more “Hawkish” stance as it pertains to monetary policy over the near-term, and we’ll hear the Fed minutes release tomorrow afternoon.