US equities were weaker Monday, with bearish sentiment still prevalent following the hawkish dial-backs delivered by the Fed and ECB last week. Bonds also sold off, and US10yr yields are up 10bps to 3.58%.
US stocks are trading modestly lower Monday on the back of a relatively large backup on the US yields. In a departure from the recent trend of stocks and yields moving lower in tandem, investors are back fretting about the Fed’s signal to push back on higher risky assets until the labour market starts to turn. So the street is shying away from ‘long duration assets’ while stocks generally remain snared in the seemingly never-ending recessionary doom loop default position.
The higher for longer interest rate environment takes a bit of time for markets to absorb — although we may be seeing some of this absorption today.
Indeed investors are still precariously perched on the cliff edge after recent remarks from the Fed and other hawkish central banks across the globe.
While the rise in yields is a minor reversal of a significant drop that we have seen since the October CPI was released in early November, whether or not rates return to their highs may not even matter. The cumulative effects of global monetary policy tightening will significantly impact equity valuations and, more importantly, global growth.
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Indeed the US housing data continues to show signs of cooling off as the NAHB housing market index sunk to its lowest level since the depths of the pandemic in April 2020 despite mortgage rates coming 75bps off their peak, as macro headwinds weigh on buyer confidence and paint a reasonably sad picture of Main Street.
Concerns over China’s reopening continue to weigh on Asian assets amidst rising Covid cases while global growth trepidation conditions ice down the Far East holiday rally camp.
A massive China reopening bounce is giving way to a reality check as investors come to grips with numerous zero-Covid offramp economic and medical issues that China is simply unprepared to handle, especially if the predicted 10 million + daily Covid cases hit the healthcare system later this month.
Published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT