Today was spent recalibrating expectations now that the ‘dovish tilt’ is more of a distant spot in the rear view mirror. Following the ‘we will keep at it’ message from Powell on Friday, we also got messages of ‘larger sacrifices’ from ECB’s Schnabel and France’s Villeroy over the weekend, and this week we have a long list of Fed speakers poised to chime in. Markets felt hesitant today, as a UK holiday and an upcoming US holiday stifled activity. Fed fund futures are now implying a year end rate of c3.75%, and cuts sometime in 2023, contrary to what officials are saying, which leaves room for further interpretation this week. Economic data will still be a major focus for all parties, of course. The Dallas Fed Manuf. Survey came in below estimates this morning, although the 6 month outlook improved from -17.7 last month to -8.8 this month. This just added to the mixed messages that economic data continues to send ---things are seemingly improving, but inflation is still rife. Either way, markets attempted to make a move into the green today, but it was a struggle and ultimately failed. The breadth for the S&P remained negative all day (55% decliners), clearly a drag on the index. With Value outperforming Growth again (1.3%), some of the growth ETFs tested their supports. Semis, Software and Comm fell below their 50-day averages, led lower by their constituents--- Google (-86bps), Microsoft (-1.1%) and Meta (-1.6%), to name a few. With Oil +4% today and the 10yr back above 3%, its highest level since late-June, the Growth vs UST debate is likely to heat up…just as summer does the opposite.
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