Equities were essentially unchanged yesterday following its best week of 2023. A reversal of the moves in Treasuries weighed on stocks with 10-year Treasury yields rising about 7 bps to around a 4.65% yield. Last week’s 45 bps decline in Treasury yields was a major catalyst for the stellar equity advance.
Wall Street is now stating short-term rates are at cycle high yields with some adamantly declaring “June is a done deal for a cut.” The markets are building in four rate cuts next year, the first of which has been pushed forward to the May/June time period.
Numerous Fed officials—including FRB Chair Powell—are slated to speak in the next few days. It is generally assumed these speakers, may “push back” on this emerging narrative that the Fed is done, and the first-rate cut will occur in June.
It should be noted that the current narrative is almost identical to last November’s narrative.
Some are now questioning the speed and scope of last week’s Treasury rally. Bloomberg writes short interest in the 10-year Treasury was the greatest since 2006. The Newswire further commented liquidity is a fraction of what was in 2006 but the market is about four times larger thus suggesting last week’s Treasury advance was nothing other than a short cover rally that may soon reverse.
What will happen today?
Last night the foreign markets were down. London was down 0.01%, Paris down 0.52% and Frankfurt down 0.28%. China was down 0.04%, Japan down 1.34% and Hang Seng down 1.65%.
Futures are down about 0.35% as Fed rate cut doubts begin to creep in based upon comments from Minneapolis Fed President Neel Kashkari. He stated it is too early to declare victory over inflation, injecting some reality back into the market further commenting “the market has gotten carried away thinking that policy easing is just around the corner.” The 10-year is up 3/32 to yield 4.63%.
