Market volatility high as traders debate the future

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Published Date 6/23/2023

Yesterday the 10 year note increased 8 bps driven by more remarks from Jerome Powell that the Fed is prepared to tame inflation. Powell spent two days testifying in Congress pushing the view the Fed is not finished and inflation must be tamed, even at the risk of a possible recession. Powell said he worries inflation will be very harmful to lower income wage earners and must be lowered. Lower earners do face more serious difficulties with high inflation, the other side of that is continuing higher interest rates also causes pain. The headline yesterday, Powell saying one or two more rate increases may be necessary, markets though still uncertain.

Recession or not? An equally divided outlook. Is the stock market ready for a big downturn? Also, an evenly divided outlook among analysts. Janet Yellen commented that she sees diminishing risk of a US recession and suggested that a slowdown in consumer spending may be the price to pay for finishing the campaign to contain inflation. She pointed to resilience in the labor market and the recent drop in price growth.

BofA commenting today that the commercial real estate market is headed for more problems over the next two months. Empty offices and retail space cloud the outlook for whether owners will borrow more to make the huge principal payments or deliberately default on the debts to recast the trillions of dollars of loans with lenders. Either way banks and investors holding commercial loan debt must be increasingly concerned with what the Fed is talking about with higher rates ahead. BofA also suggests the tech rally may be over, the technology sector saw $2B outflows, the largest in 10 weeks, in the five trading days through June 21, NASDAQ +38% for the year, the best half year since 1999.

At 9:30 am ET the DJIA opened -230, NASDAQ -147, S&P -35. 10 year note 3.70% -10 bps. FNMA 6.0 30 year coupon at 9:30 am +6 bps and -16 bps from 9:30 am yesterday.

At 9:45 am the June PMI Flash composite index at 53.0; manufacturing expected 48.5, increased to 46.3, services expected 53.5, came at 54.1.

There isn’t anything else today except Cleveland Fed’s Mester at 1:40 pm. Whatever she has to say won’t have any market impact, investors and traders have heard enough from the Fed this week.

When the head of the Fed speaks, markets listen but don’t always agree. Two days testifying didn’t change the 10 year note, it closed Tuesday at 3.72% and this morning the 10 began at 3.69%.

Source: TBWS

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