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US yields fall as Fed speech revives pivot bets: markets retreat

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(Bloomberg) — Treasuries extended their November rally on bets that the Federal Reserve is done with rate hikes and will be able to ease policy next year.

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As U.S. yields fell, Fed swaps forecast rate cuts of more than 100 basis points by the end of 2024. In a speech titled “Something Seems to Be Giving,” Governor Christopher Waller – the one of the Fed’s most hawkish officials – said he was “increasingly confident.” this policy is currently well-positioned to slow the economy and bring inflation down to 2%. While acknowledging the many uncertainties, colleague Michelle Bowman stopped short of telegraphing an imminent hike.

For Peter Williams of 22V Research, the chances of a pivot or dovish reset appear to be increasing even as the chances of a Fed-induced recession are decreasing.

“The FOMC’s next policy move will likely be a rate cut, and markets are trying to price in these cuts even before Powell and Co., and indeed other global central bank leaders, have declared victory on inflation,” Fawad said. Razaqzada, market analyst at City Index and Forex.com. “Markets are getting a little too excited, but traders are just looking to take advantage of the momentum – and will ask questions later.”

Two-year yields fell 15 basis points to 4.74%. The dollar suffered its fourth consecutive day of losses, heading towards its lowest level since August. The S&P 500 approached “overbought” levels in a rally that delivered the market one of its biggest November gains on record.

Read: Real Estate Market Mystery Haunts Wall Street for 2024: Watch

On the economic front, U.S. consumer confidence rose for the first time in four months in November, supported by more optimistic views about the labor market outlook. Home prices hit a new record high, according to seasonally adjusted data from S&P CoreLogic Case-Shiller.

The good news for investors is that the recession is not here yet, making a recovery likely at the end of the year, according to Lauren Goodwin of New York Life Investments. In past economic cycles, markets have not tended to price in recession until jobless claims rise and profits decline sharply – signs that recession has already arrived, he said. she noted.

“Modest slowdowns in inflation and job growth mean that a ‘Fed relief recovery,’ accompanied by a recovery in stocks, bonds and credit as we are seeing now, can be sustainable,” Goodwin said. “Our concern is that this end-of-cycle limbo is no different from those of the past: a Goldilocks moment before the very reason for moderating inflation – slowing economic growth and employment – ​​becomes clear in the data. »

The most active investors in the Treasury market are more optimistic than ever, according to a weekly survey conducted by JPMorgan Chase & Co. since 1991.

JPMorgan’s Treasury client survey for the week ended November 27 found that 78% of active clients were positioned long their benchmark, up from 56% the previous week. None of them were positioned short for a second consecutive week, for a net long position of 78%, the largest in the survey’s history. The other respondents were neutral.

The recent sharp decline in volatility as the end of the year approaches creates hedging opportunities given the gloomy outlook for stocks, according to Goldman Sachs Group Inc. strategist Christian Mueller-Glissmann.

“After the recent rally in stocks, we believe there is an attractive entry point to hedge retracement risk,” he noted. “Volatility across all assets has continued to decline, supported by markets embracing the ‘reverse’ Goldilocks backdrop in the US, with inflation normalizing faster than expected and growth remaining resilient.

This drop further widened the gap with rate volatility, which is expected to normalize in 2024, he added.

Bank of America Corp. customers were net buyers of U.S. stocks last week, with institutional and retail investors leading the buying while hedge funds dumped shares. Clients invested $2.6 billion in U.S. stocks, with inflows into both individual names and exchange-traded funds, said quantitative strategists led by Jill Carey Hall.

This month’s rally in the S&P 500 is now running out of steam, according to Chris Montagu, a strategist at Citigroup Inc. He said futures flows last week were “mixed,” leaving net positioning in the benchmark index appear “slightly bearish”.

A Bloomberg Intelligence model known as the Market Regime Index – which groups periods into three phases called accelerated growth (green), moderate growth (yellow) and decline (red) – has remained stuck in the middle over the last nine months. This suggests that stock return expectations are likely to remain average until the Fed shifts from raising interest rates to cutting them, according to Gina Martin Adams, BI chief equity strategist, and Gillian Wolff , senior associate analyst.

At the same time, hedge funds have invested in bullish bets on the dollar this month, despite the currency’s slide following slowing U.S. economic data and growing expectations that the most aggressive rate hike cycle of the Fed for a generation is coming to an end.

A measure of leveraged funds’ net long positions in the greenback against eight currencies rose to its highest level since February 2022 as of Nov. 21, according to Commodity Futures Trading Commission data aggregated by Bloomberg. It stood at 103,042 contracts net, just above the previous year’s high seen in April, after bottoming around a net short position of around 72,000 contracts in March.

“The US dollar has weakened across the board as the market becomes increasingly convinced that the US central bank’s next move will be to cut interest rates, perhaps as early as the second quarter,” he said. noted Razaqzada.

Company strengths:

  • The long-awaited delivery of Tesla Inc.’s Cybertruck on Thursday is a “big moment” for the company, said Dan Ives, an analyst at Wedbush.

  • Morgan Stanley was downgraded to Société Générale to be retained.

  • Micron Technology Inc., the largest U.S. maker of computer memory semiconductors, warned that it was spending more than expected on operations.

  • Boeing Co. was upgraded by RBC Capital Markets to outperform as shares are in the early stages of a “significant change in sentiment” amid strong demand.

  • PG&E Corp. announced it would distribute a dividend for the first time in about six years as part of the California utility giant’s efforts to restore its financial health after emerging from bankruptcy.

  • Zscaler Inc., a security software company, confirmed a calculated billing forecast for 2024 that was slightly lower than midpoint estimates.

  • Bristol Myers Squibb Co. has agreed to pay up to $2.3 billion to work with Avidity Biosciences Inc. to develop drugs to treat rare heart diseases.

  • Adobe Inc.’s proposed $20 billion purchase of design software maker Figma Inc. faces being blocked by Britain’s competition watchdog unless it comes up with solutions to resolve competition issues.

  • Panama’s highest court has ruled against a law approving a contract with First Quantum Minerals Ltd., casting doubt on the future of one of the world’s largest copper operations.

Key events this week:

  • New Zealand rate decision Wednesday

  • The OECD publishes its half-yearly economic outlook on Wednesday

  • Eurozone economic confidence, consumer confidence, Wednesday

  • Bank of England Governor Andrew Bailey speaks on Wednesday

  • US wholesale stocks, GDP, Wednesday

  • Cleveland Fed President Loretta Mester speaks Wednesday

  • The Fed publishes its Beige Book on Wednesday

  • China non-manufacturing PMI, manufacturing PMI, Thursday

  • OPEC+ meeting, Thursday

  • Eurozone CPI, unemployment, Thursday

  • US personal income, PCE deflator, first jobless claims and pending home sales, Thursday

  • Caixin Chinese manufacturing PMI index, Friday

  • S&P Eurozone Global Manufacturing PMI, Friday

  • U.S. construction spending, ISM Manufacturing, Friday

  • Fed Chairman Jerome Powell to participate in ‘fireside chat’ in Atlanta on Friday

  • Chicago Fed President Austan Goolsbee speaks Friday

Some of the main market movements:


  • The S&P 500 was little changed as of 2:51 p.m. New York time

  • The Nasdaq 100 has changed little

  • The Dow Jones Industrial Average rose 0.3%

  • The MSCI World index increased by 0.2%


  • The Bloomberg Dollar Spot Index fell 0.4%

  • The euro rose 0.4% to $1.0993

  • The British pound rose 0.6% to $1.2701

  • The Japanese yen rose 0.9% to 147.40 per dollar


  • Bitcoin rose 3.3% to $38,237.75

  • Ether rose 2.4% to $2,063.74


  • The 10-year Treasury yield fell five basis points to 4.34%

  • The German 10-year yield fell five basis points to 2.50%

  • The UK 10-year yield fell four basis points to 4.17%

Raw materials

  • West Texas Intermediate crude rose 2.2% to $76.51 a barrel

  • Spot gold rose 1.4% to $2,042.28 an ounce

This story was produced with the help of Bloomberg Automation.

–With help from Jason Scott, Tassia Sipahutar, Alex Nicholson, Carter Johnson, Masaki Kondo, Michael Msika, Michael Mackenzie and Edward Bolingbroke.

Most read from Bloomberg Businessweek

©2023 Bloomberg LP

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