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Digesting Hawkish Forward Guidance


Markets still reacting to FOMC's expected 75bp hike but digesting forward guidance as bonds mark new highs, curves extending inversion w/2YY back over 4.0% to 4.0378% at the moment, stocks extending lows after bouncing to new session highs following initial FOMC react.

  • Stocks made new lows (3802.25) after initial selling sent SPX to 3836.75 low. Hawkish forward guidance weighed on equities and helped push 2YY to new 15 year highs of 4.1168%, yield curves extending inversion (2s10s -53.757 low).
  • The Fed also sharply boosted its forecast for where interest rates are likely to peak next year to 4.6% from its June forecast of 3.8%. “Recent indicators point to modest growth in spending and production,” the FOMC said in a statement.
  • Flipside to hiking to is prospect of cutting rates as price stability and inflation comes back to 2.0% target helping current rebound with SPX tapping 3918.75 high.
  • Timing of Chair Powell comment on recession risk: "no one knows whether this process will lead to a recession or if so, how significant that recession would be," coincided with dip in stocks to 3890.0. Late risk-off on question regarding economic pain and potential "difficult correction" to get housing fundamentals back in balance.
  • Smaller than expected August existing home sale -0.4% decline to 4.80M, helped buoyed 2Y yields as pace slowed abruptly from the -5.7% in July and an average monthly decline of almost -5% through 1H22.
  • The 2-Yr yield is up 6.7bps at 4.0335%, 5-Yr is down 0.2bps at 3.7449%, 10-Yr is down 4.5bps at 3.5181%, and 30-Yr is down 7.3bps at 3.4978%.

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