The Market Today

2Y Crosses 1.00% for First Time Since Feb. 2020


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

New York Fed Index Plunges: The New York Fed’s January report on regional manufacturing conditions disappointed expectations, down from +31.9 to -0.7.  The index was expected to drop to +25.0. This is the first month the index has been below zero since the initial pandemic impact.  The new orders index dropped from a strong +27.1 to -5.0.  The delivery times index inched down from +23.1 to +21.6 and the prices paid index declined from +80.2 to +76.7.  However, the index tracking respondents expectations for prices paid 6 months forward rose from +66.1 to +76.7, the highest level on record.

Quiet Week for Data Starts with Homebuilder Confidence: The January Homebuilder Confidence report is expected to show sentiment remaining very high (9:00 a.m. CT).


OTHER ECONOMIC NEWS

ICYMI – January 14, 2022 Weekly Market Recap: Shorter Treasury yields flipped back and forth for the first four days of the week and longer yields grinded gradually lower. However, the curve ripped higher Friday after several days of continuous chatter from a host of Fed officials, ranging from San Francisco’s Daly, a prominent dove, to St. Louis’s Bullard, among the most hawkish, loudened the drumbeat for a March hike. Officials were out in force last week pledging to use their tools to fight historically strong inflation. While there were some pockets of moderation in December’s still-broadly firm CPI report, headline price gains accelerated from 6.8% to 7.0%, the fastest since 1982, while core inflation picked up from 4.9% to 5.5%, the quickest pace since 1991. In addition to liftoff in March, several officials began to float the idea of four hikes this year if the uncomfortably high inflation rates don’t subside as the year progresses. At the same time, several reports pointed to a slowdown in activity in December. The Fed’s Beige Book implied slower activity while retail sales were royally disappointing. Business confidence inched up but remains low and consumer confidence declined to the second lowest level since 2011 in the University of Michigan’s preliminary report for January. Notably, consumers’ longer-term inflation expectations jumped to their highest level since 2011. After Friday’s surge, the 2-year yield ended the week 10.5 bps higher at 0.97%, the 5-year yield rose 5.9 bps to 1.56%, and the 10-year yield added 2.2 bps to 1.78%, all setting new highs for the cycle. Click here to view the full recap.


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TRADING ACTVITY

Interest Rates Extend Friday’s Climb, Setting New Cycle Highs: Several storylines have unfolded over the last 48 hours as U.S. markets remained closed Monday to honor the life of Martin Luther King Jr. While most major global central banks have embarked on efforts to contain inflation, China cut a key policy rate Monday as it seeks to guide its economy through a slowdown. China’s economy expanded 4.0% in the fourth quarter compared with a year ago, stronger than expected but the weakest rate since the second quarter of 2020. Japan’s central bank kept rates unchanged on Tuesday and sees inflation running below its target over the forecast horizon. Corporate earnings season will continue this week. Shares of Goldman Sachs fell in pre-market trading after the company’s overall trading results missed expectations. And oil prices jumped to their highest levels since 2014, extending a two-month surge after a report from OPEC described a positive outlook for demand. However, the underlying market tone continues to be set by rising interest rates amid the increasingly hawkish tone from Fed officials (more above). At 7:15 a.m. CT, the 2-year Treasury yield was 5.3 bps higher at 1.02%, off an earlier high of 1.06%. The 5-year yield rose by the same amount to 1.61%, down from as high as 1.65%. The 10-year yield had added 3.8 bps to 1.82% after touching 1.85% overnight. As the curve set new cycle highs, global stocks fell and U.S. futures declined. The Nasdaq was leading the weakness, down 1.5%, while the S&P 500 pulled back 0.9% and the Dow slipped 0.8%.


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