Friday, June 30, 2023

Capital Markets: "Market Continues to Converge With Fed's Forward Guidance"

 From Marc to Market:

Overview:  A key development in recent days has been the market's convergence with the Federal Reserve's forward guidance regarding scope for two quarter-point hikes in the second half. The US two-yield is up about six basis points today, extending yesterday's 15 bp increase. It is approaching 5%. The Fed funds futures strip implies one hike has been fully priced in and about a third of the next one. The dollar has risen against all the G10 currencies this week but the Norwegian krone. It is mixed today (+/- ~0.20%) ahead of US data, and especially the PCE deflator. The weakness in China's PMI and Japan's industrial output contrasts with the string of stronger than expected US economic data.

Asia Pacific equities were mixed, while Europe's Stoxx 600 is advancing for the fourth consecutive session, which snapped a six-day down draft that ended on Monday. US index futures enjoy a firmer bias. Among the large bourses, the S&P 500 is up nearly 7% this quarter compared with less than 1% gain of the Stoxx 600. The Nikkei leads with a nearly 18.4% surge. China's CSI 300 is off a little more than 5%. Europe's 10-year yields are mostly 2-3 bp firmer, but the Gilt yield has jumped seven basis points bringing the Q2 increase to more than 90 bp. The 10-year US Treasury yield is up five basis points near 3.89%, a 34 bp rise this quarter. Gold recovered from the first dip below $1900 in three months but stalled near $1910 and is now below $1905. August WTI is firm and reached a new high for the week near $70.75. It is up about 1.5% this week after falling almost 4% last week. For the quarter, it is off almost 7% after falling nearly 5% in Q1....