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Hang Seng Index futures closed up 1.25% at 19,841 points in the night session, 257 points higher than the previous session.Congressional Budget Office (CBO): The cost of clean energy subsidies in the inflation-proof bill is now expected to be $825 billion between 2025 and 2035, compared with an estimated cost of $270 billion between 2022 and 2031.The Federal Reserve accepted a total of $118.327 billion from 32 counterparties in fixed-rate reverse repurchase operations.The Federal Aviation Administration (FAA) said it was working with SpaceX and relevant authorities to confirm reports of damage to public property in the Turks and Caicos Islands.Futures traders are adjusting their bets in the Treasury market after mild inflation data and dovish comments from a Federal Reserve official. Over the past two days, the volume of open interest has changed, consistent with traders exiting short positions in two-year Treasury bonds and establishing new long positions in longer-term Treasury contracts, especially in the five-year Treasury. The shift came after consumer price inflation data released on Wednesday and comments made by Federal Reserve Governor Christopher Waller the next day. Data released on Wednesday showed that core price increases in December were lower than economists expected; Waller said that if the trend continues, officials may cut interest rates again in the middle of the year. Morgan Stanleys interest rate strategists suggested late Thursday that long positions could be established in Treasury bonds of this term given expectations that the Federal Reserve will cut interest rates in March, but this is still a minority view. The swap market expects only a 6 basis point rate cut in March, which means there is about a 25% chance of a 25 basis point cut. “We haven’t ruled out a rate cut in March, but we do see it as more of a tail risk,” said Stephanie LaRosiliere, head of fixed income strategy at Invesco. “It doesn’t feel like the Fed needs to react so hastily.”

Global Macro Analysis

Cory Russell

Apr 07, 2022 11:35


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The S&P 500 index fell 1.0 percent on Wednesday. US 2s10s steepened even further, with 10yr rates rising 5 basis points to 2.6 percent, the most in three years, and 2yr yields falling 5 basis points to 2.47 percent. The price of oil has dropped by 4.7 percent.


I won't go into detail about the FED minutes since Vice-Chairman Brainard has previously laid the groundwork.


The global bond market resumed its sell-off after a March respite, causing a worsening in cross-asset risk sentiment, with global tech equities suffering the brunt of the fallout.


In a high-inflation climate, reducing the balance sheet is a substantial source of market uncertainty. However, despite the build-up of economic and geopolitical headwinds over the previous several weeks, stock markets were overbought to a great extent, so this is simply a corrective move to a more sensible level.


The major source of worry seems to be rates, so if rates manage to stabilize, we may see a systematic bid return. However, if interest rate volatility remains high, stocks may continue to be under pressure.


The overnight movement in US transport equities is the latest in a long line of smoke signals the market is sending about recession fears. No market analyst is predicting a recession with too much speed in the economy, but that does not rule out the possibility that some of the signs of one are beginning to appear.


The overall picture has shifted from a certain mid-cycle situation a month or two ago to a late-cycle likelihood presently. I've been preaching about the compressed nature of market cycles since Covid's inception, and the most recent adjustment took weeks rather than a year. Another illustration of the ticker tape's ruthlessness and the speed with which key pivots are priced.


The point is that, similar to the 2's10's inversion, although we may argue about the likelihood of a recession and if the Transports move is a signal for one, the viciousness of pricing actions has pushed people's hands whether they believe in them or not.


Even though one swallow does not make a spring, it seems that the market is concerned that the Fed is behind the curve, and that something like the Volcker adjustment is in the cards with that proviso in mind.

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