Inside Markets

The Fed is widely expected to pause at this week’s meeting. The updated dot plot seems to be the wildcard with a ~30% chance for the median dot to price out another 25bp hike for 2023.

The NY Fed’s Empire manufacturing survey was stronger than expected, with new orders and prices received surprising to the upside.

This morning’s August CPI print did little to shift the inflation narrative in either direction. Headline CPI came inline, up +0.60% MoM, while the rounded core rate came in hotter, up +0.3% vs. expectations for +0.2%.

This morning’s August CPI print did little to shift the inflation narrative in either direction. Headline CPI came inline, up +0.60% MoM, while the rounded core rate came in hotter, up +0.3% vs. expectations for +0.2%.

Implied equity volatility has been a nonfactor for markets since late March, which is why we’ve added it to the ‘Markets’ section above. High levels of volatility provide a strong headwind for equity markets, while low levels cushion potential downside.

In our opinion, the near-term bullish narrative first needs to include an implicit or explicit announcement from the Fed that the hiking cycle has ended.

A combination of rising oil prices and heavy corporate bond issuance on Tuesday plus yesterday’s stronger ISM services report will result in higher bond yields, which puts pressure on equity markets.

ISM services for August came in stronger than expected with new orders, employment and prices all higher MoM. The data keeps upward pressure on bond yields.

September always brings a lot of discussion about seasonality given that it’s the worst performing month of the year. But while September’s average return is negative, its median return is ~0%.

Yesterday, 10-year bond yields reached our near-term target of ~4.09% intraday, while the 5-year yield has dipped but remains above our target of ~4.14%. The result is a 5/10 yield curve inversion in the -10 to -15bp range, which falls short of bullish signaling for