Equities, led by growth, staged a modest advance on the belief the overnight rate will be lower by 75-100 bps by year’s end. During the past month, the NASDAQ has outperformed most other markets primarily because of this belief. The question at hand will this belief turn into reality?
Many times, there have been false starts, ending in disappointment that such a proverbial pivot did/does not occur on the preconceived time table.
Will it be different this time even though the FOMC has again adamantly stated that such a pivot “is not even on its radar?”
Unfortunately only history will answer this question.
Speaking of questions, Treasury Secretary Yellen stated yesterday “the government is ready to take further measures to protect deposits.” Two days ago, the Treasury Secretary stated “the government is not considering a broad increase in deposit insurance.”
Some hypothecated she changed her stance because of issues surrounding Republic Bank. How accurate is this hypothecation? Others have already commented that the government is or already has created a moral hazard, perhaps accentuated by picking the winners and losers.
Commenting about the Treasury market, shorter dated Treasuries dropped again in yield and as already discussed swaps are indicating the overnight rate will be about 75 bps below current rates and 100 bps below the projected rate achieved sometime in June/July.
Regarding yesterday’s data release, weekly unemployment claims unexpectedly eased for a second week, underscoring a still tight job market in which employers are reluctant to reduce headcount. Sales of new homes also unexpectedly rose in February after a downward revision to the prior month.
What will happen today?
Last night the foreign markets were down. London was down 2.06%, Paris down 2.45% and Frankfurt down 2.51%. China was down 0.64%, Japan down 0.13% and Hang Seng down 0.67%.
Futures are down about 0.75% on European banking concerns. Deutsche Bank slumped about 15%, the most since March 2020 according to Bloomberg The 10-year is up 31/32 to yield 3.32%. The two year is down 16 bps to yield 3.58%.
