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“Victory awaits him who has everything in order, luck, people call it.” – Roald Amundsen
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
US markets are experiencing a bit of follow-through this morning following the monster rally in stocks and bonds yesterday afternoon. While the Fed was the main event for the week, the ECB just announced no change in rates but moved forward its target date for when it expects to reach 2.0% inflation. Besides the ECB, there are several other central banks announcing decisions today as well. With the Fed now officially on hold, good economic news can be viewed as good again while the market may not be quite as receptive to soft data. We got the first test this morning with Retail Sales (higher than expected), Jobless Claims (lower than expected), and Import Prices (lower than expected) at 8:30 followed by Business Inventories at 10:00. In reaction to this first batch of reports, futures have seen little in the way of a reaction in either direction.
After a cruel summer sell-off that kicked off in August and all but erased the enchanted rally that spanned the months of May, June, and July, the market found itself in a delicate position in late October as the uptrend from the bear market lows in 2022 that we all remembered all too well were being tested. Right around Halloween, all bulls could think was, is it over now?
In reaction to yesterday’s explicit pivot from Fed Chair Powell on interest rates, treasury yields have plunged, crossing some important milestones in the process. We’ll start at the short end of the curve. With the 2-year yield plunging 30 basis points (bps) yesterday, its closing level was 4.43% which is the same level it started the year at. This morning, the 2-year yield is down an additional 10 bps which also puts it within just a couple of basis points of being flat on a year/year basis as well.
The 10-year yield fell 18 bps yesterday to close at 4.02%, and this morning it’s down another eight bps to 3.94%. As shown in the chart below, that’s still up slightly on the year, but crossing below the 4% boundary is an important psychological barrier.
What’s also notable about the decline in the 10-year yield this morning is that it is now down more than 100 bps from its recent closing high on 10/19. Since the FOMC first started talking about hiking rates back in late 2021 the current decline is the largest we have seen to date.
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