- Thursday’s Consumer Price Index “CPI” print was the big story of the week, with core CPI for October coming at +6.3% vs. expectations of +6.5%. The report drove equities and other risk assets sharply higher on expectations that inflation growth has begun to slow, and the Federal Reserve “Fed” will be less aggressive in its rate-setting policy.
- U.S. Equities were up +6% on Thursday and ended the week +8%, with technology stocks leading the way. The bond markets were closed on Friday in observance of Veteran’s Day, but yields were lower across the curve, with benchmark 5-year treasury yields -40bps lower than the previous week. (Table; Chart 1)
- The expected peak for the Fed interest rate fell from 5.3% to 5.1%, with the market pricing in approximate +100 bps in additional Fed hikes, including +50 bps at the December 14 meeting. (Chart 2).
- Longer term, the market is more sanguine on interest rates and inflation, with the 2-year treasury yield expected to decline from 4.6% today to 3.8% in two-years’ time. (Chart 3).
- Credit assets reported positive returns across the board, driven by lower rates and market optimism, with Emerging Market debt +2.4% higher, High Yield +1.3%, and BBB debt returning +2.6% on the week. With 60% of economists still expecting a recession in the near-term, returns were strongest in higher-quality assets. (Chart 4)
- With High Yield + 1.3% on the week, BB and B gained (+ 1.4% and + 1.3%, respectively), while CCC lagged, + 0.5%. (Chart 5)
- High Yield Sectors were broadly positive for the week , with Consumer Non-Cyclicals leading (+ 1.6%) while TMT and Financials lagged (+ 1.0%). (Chart 6)
The Week by the Numbers
Chart 1
Chart 2
Chart 3
Chart 4
Chart 5
Chart 6
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