US equities finished flat after a volatile stretch, with Wednesday’s first rate hike in more than three years initially pushing stocks lower, before falling oil prices and a rebound in Treasuries helped claw back much of the damage.
Importantly, the 10-year Treasury yield moved above 5% for (say the line) “the first time since 2007.” Long-volatility demand remains elevated as a result, with large October and November Treasury straddles showing traders expect rates to remain the main source of cross-asset instability.
Reports of additional Saudi crude shipments initially eased concerns around a prolonged supply squeeze, although Aramco later told some European customers they would receive no crude next month. The resulting volatility in energy prices remains an important input for both inflation and equities, but the pullback was enough to give risk assets some breathing room into Thursday and Friday.
The dollar’s muted reaction to the Fed hike was notable. Ordinarily, the first rate increase in three years alongside a hawkish dot plot would be expected to generate a much larger move. Instead, the USD largely wavered, suggesting the September decision had already been absorbed after Jackson Hole and the recent inflation data. The bigger FX move came from Japan, where a split BOJ hike failed to support the yen as much as traders had positioned for.
Two drivers will be moving markets this week: follow-through from rates and a Trump-Xi meeting. So, let’s get into the guide to trades moving markets, where things stand, and where they may be heading.
“Hawkeyed”
“Two Strongmen in the Playground”
“Summary of House Views”
Hawkeyed
We’ll take each meeting as it happened, as last week was all about rates. On outcomes, each decision aligned with market expectations, but what follows next differs.