What happened last week
- Treasury yields continued to move last week higher on strong economic data.
- U.S. inflation came in slightly hotter than expected, driven by the recent increases in energy prices.
- Stability in China’s economic data likely contributed to international equity outperformance.
What we’re watching this week
- In this week’s policy meeting, the Fed is expected to hold rates steady and continue data dependence; bond traders will parse their economic projections.
- Eleven other global central bank meetings will color the global inflation and growth picture.
- UAW strike developments are more important for wage inflation than the growth outlook.
Horizon’s Investment Management View
- Treasury yields continued to march higher as global stocks ended mixed in a volatile trading week full of macro and technical drivers. On the macro side, U.S. CPI came in hotter than expected across headline and core measures. Although we anticipated the rally in energy commodities to drive a re-acceleration of inflation, we are now monitoring for a broadening of price pressures. Outside the U.S., China’s economic data stabilized following a string of small-scale stimulus efforts. A surprise increase in retail sales boosted China’s growth prospects, fueling international stocks’ outperformance last week.
- Technical factors in equities likely added to last week’s volatile trading. Friday’s quarterly options expiration featured elevated volume as investors readjusted hedges and futures positioning. The tech-heavy NASDAQ 100, one of last week’s bigger underperformers, was likely victim to similar flow-related dynamics as a popular option strategy reset its derivative positions. As we close the third quarter, we expect market volatility to increase as quarter-end flows and repositioning drive price action without large macro and fundamental catalysts. Given the market’s indifference to recent macro events, we are still on watch for potential trend changes, although we may need to wait for earnings season.
- However, the week ahead may shake the macro malaise. The Fed is the biggest headline event, but with eleven other central bank meetings on the docket, we will get plenty of updates on global economic trends. In the U.S., we don’t expect a rate change from the Fed at this week’s FOMC meeting. Economic and interest rate projections, especially for 2024, will be parsed by bond traders. Bigger picture, the Fed is watching the data like the rest of us.
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