SUMMARY:
- Takeaways from last week in cross-asset markets
- Thoughts and key considerations ahead of the upcoming week
- House views and expressions
SPX closed July down 0.13%. After all that happened, it feels anything but unchanged.
Much of the recovery last week can be attributed to gains in tech on Thursday and Friday, notably Microsoft and Amazon. The equal-weight index showed no such struggles, as the broader market was less volatile and leadership rotated. The Nasdaq entered correction territory just before the comeback was staged (Wednesday), with the main factors of the unwind being semiconductors and memory.
The FOMC meeting added to what was a crazy week. Rates were held, three officials voted for a hike, and Warsh again made price stability his central focus. Markets took a dovish read of the meeting, particularly as there were no explicit signs that tightening is on the way. However, the removal of forward guidance leaves markets to infer the path from each data print, creating more, not less, sensitivity.
OIS markets price a hike for the December meeting, but long-end yields are at levels that suggest the Fed is behind the curve. Curve steepeners are firmly in play.
The dollar took a soft interpretation of Wednesday, leading to its weakest week since January. Intervention in yen markets added to the USD/JPY move further, but we still see the broader dollar backdrop as balanced, despite last week’s decline.
Let’s get into the guide to trades moving markets, where things stand, and where they may be heading.
“Warsh’s Word Salad”
“Co-Ordinated Intervention”
“Global Equity Strategy”
“Summary of House Views”
Warsh’s Word Salad
Financial conditions tightened regardless of the lack of move in the policy rate. 30-year yields climbed to their highest level in 19 years, 5.28%. The curve steepened, mortgage rates climbed, equities had their most adverse reaction to a meeting since late 2024.
Warsh offered no better than a word salad in his presser, giving almost no guidance on the conditions that would prompt a hike or the timing of the next move. Three members voted to tighten immediately, and little was done to explain how that disagreement might be resolved.