Chart of the Day
One big change in the past couple of weeks is the feeling that central banks across the world are getting more hawkish. The Fed presented some hawkish forecasts and now appears to be set to increase interest rates late next year, the Bank of England appears to be teeing up a rate hike even sooner, and the Norges Bank already hiked last week. In Emerging Markets, several central banks have been hiking as well. All this could spell bad news for tech stocks, which tend to be most sensitive to interest rate changes. As this chart shows, the Nasdaq rose strongly as the US 5-year bond yield fell over 2019 to 2021. Since the middle of 2021, the Nasdaq has continue to rise due to strong earnings expectations, but the opposite could occur if yields rise further.
Macro
The German Ifo survey expectations component fell to 97.3 in September, leaving it consistent with GDP growth faling toward 0% – not a good sign.
The Dallas Fed manufacturing sector survey also fell in September and would normally be consistent with a sharp drop in the US manufacturing ISM.
US durable goods orders are going from strength to strength, a sign of strong investment demand.
Markets
The rise in bond yields in the past week has been highest in North America and the UK.
This means the UK 10-year is almost back to 1%, unusual for Europe.
That’s because traders are now pricing in rate hikes from the BoE – the UK 12-month overnight index swap is currently 0.26%, above the policy rate of 0.10%
Very long-term interest rates – for 2031-2040 – have risen by more in the eurozone than the US lately. This is telling us that, while traders think the Fed is getting more hawkish in the next year or two, they don’t expect that to make much different to where interest rates end up over the long run.
The steeping of the yield curve, at least out to 10 years, has been good news for financial stocks, though it’s energy that is leading the way in the past week.
That reflects strong gains in commodity prices. Compared to past year, natural gas is up over 160%.
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